##### 



Exhibit
13

(FRONT COVER PAGE)



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##### 



POTASHCORP 2004 ANNUAL REPORT   Potash   Is
Ready
     to Roll
 Several
factors are driving a wave of demand forfertilizer nutrients, especially potash.  o
    An expanding world population wants more and
better food that must be grown on less land.o
    Farmers recognize that replenishing
potash, phosphate and nitrogen in their soils helps produce
larger crops.o
    Asian and Latin American nations with
growing economies have more purchasing power and are
increasing the ratio of potash, the quality
nutrient, in their fertilizer applications. This represents the beginning of a period of substantial
growth for the potash industry.
    ...and the
            Pieces Are
                   Aligned
 
   (PICTURE)




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##### 



(PICTURE)  PotashCorpStandsAlone  Where To Find It: 4
    

Letter
to Shareholders9
    

Scorecard12
    

Sustainability14
    

Managements
Discussion & Analysis52
    
    Financial Performance Indicators56
    
    Auditors Reports58
    

Consolidated
Financial Statements87
    

Board
of Directors88
    
    Corporate Officers & Key Management89
    

Shareholder
Information
  The growth in demand has pushed other producers close to their maximum output. Meaningful new
production would require the development of additional reserves, as well as significant time and
money. With demand growing, supply tightening and prices rising, we are ready to show our unique strength
 responding to the need for potash when others cannot. This offers triple leverage: greater
volumes, lower costs and better prices. Our benefit from the upside in potash will be amplified by our investments in other potash
companies.   With
86 percentof the worldsexcess capacity
    
    
    PotashCorp hasthe unique abilityto capitalizeon growingdemand forpotash.




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##### 



2 POTASHCORP 2004 ANNUAL REPORT|  WHO WE ARE A Global Company
                for a Global
                  Industry At PotashCorp, our goal is to be the global low-cost supplier of potash into all key world markets, enhanced by a focused nitrogen and phosphate business that leverages our strengths of lower-cost
gas in Trinidad and specialty phosphate products in North Carolina.
 To achieve this, we have built an extended enterprise that includes facilities and investments in
seven countries on three continents. This allows us optimal participation in a growing business. We strive for transparency and open dialogue with our stakeholders, including investors, customers,
employees and the communities where we work and live. Each year, we report on our financial, social
and environmental performance, with the goal of continuous improvement.
 (MAP - POTASH, PHOSPHATE, NITROGEN)
    (WORLD'S LARGEST FERTILIZER COMPANY BAR CHART)
 Size and Market Prominence  PotashCorp is not only the worlds largest fertilizer company by market capitalization, it has the
greatest production capacity. We can produce more potash, the most desirable business of the three
nutrients, than any other company or any country.




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##### 



3 POTASHCORP 2004 ANNUAL REPORT  |  BUSINESS & FINANCIAL HIGHLIGHTS  (POTASH INVESTMENTS MAP)
 2004 Business Highlights  o
    Produced and sold record potash volumeso
    Achieved record potash priceso
    Increased potash market shareo
    Generated record gross margino
    Reached record gross margin in potash and nitrogeno
    Sold record purified acid volumeso
    More than tripled 2003 adjusted earnings*o
    Implemented a two-for-one stock split and increased dividend by 20 percento
    Outperformed sector in total shareholder return, with stock price almost doublingo
    Reduced recordable injury frequency rate to record low for third consecutive yearo
    Received the Overall Award of Excellence for Corporate Reporting in Canada
   Financial HighlightsAll financial data in this report are stated in US dollars
$ millions except per-share amounts 2004
    
    
    2003
    
    
    2002Financial ResultsSales
    
    $
    3,244.4
    
    
    $
    2,799.0
    
    
    $
    2,224.4Net sales *
    
    $
    2,901.4
    
    
    $
    2,465.8
    
    
    $
    1,928.7Gross margin
    
    $
    681.4
    
    
    $
    380.4
    
    
    $
    307.3Net income (loss)
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Adjusted net income *
    
    $
    267.8
    
    
    $
    76.9
    
    
    $
    53.6Net income (loss) per diluted share
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51Adjusted net income per diluted share *
    
    $
    2.42
    
    
    $
    0.73
    
    
    $
    0.51EBITDA *
    
    $
    754.3
    
    
    $
    171.8
    
    
    $
    386.0Adjusted EBITDA *
    
    $
    723.5
    
    
    $
    417.7
    
    
    $
    386.0Additions to property, plant and equipment
    
    $
    220.5
    
    
    $
    150.7
    
    
    $
    212.2Financial PositionTotal assets
    
    $
    5,126.8
    
    
    $
    4,567.3
    
    
    $
    4,685.6Net debt *
    
    $
    903.5
    
    
    $
    1,441.4
    
    
    $
    1,471.8Cash flow prior to working capital changes *
    
    $
    529.6
    
    
    $
    364.5
    
    
    $
    289.2Cash provided by operating activities
    
    $
    649.6
    
    
    $
    381.5
    
    
    $
    316.4
 * See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators on Pages 52 to 54.




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##### 



4 
 POTASHCORP 2004 ANNUAL REPORT  |  LETTER TO SHAREHOLDERS   Our timehas come
 
    (WILLIAM J. DOYLE PICTURE) William J. DoylePresident and Chief Executive Officer
 By any measure, 2004 was a rewarding year for your company. PotashCorp sold 8.3 million tonnes of potash, setting North American and offshore sales records.
Demand continued to grow and prices reached new highs by the end of the year, driving gross margin
to an unprecedented level. Our success was also reflected in areas beyond the income statement. We achieved growth while
reducing our recordable injury frequency rate to the lowest ever. We earned recognition and awards
for governance and corporate reporting. Our share price nearly doubled as our investors enjoyed the
benefits of a stock split and a higher dividend. It was an amazing year filled with remarkable successes. But for those who know our company and the
determination of our people, it was not surprising. We have a talented, well-trained and committed
team that has been building toward this time for almost two decades. We have assembled tremendous
assets and managed them with a long-term view. Now, the factors that impact our business  and our potential  are falling into place like
dominos, each one triggering the next for PotashCorp. Rewarding Investors Our company holds a distinct advantage in potash. This was demonstrated in 2004 as higher volumes
and prices resulted in a considerable increase in earnings. Our potash gross margin of $422.8
million was more than twice that of 2003 and represented 47 percent of potash net sales. This was supplemented by a strong year in nitrogen as tight supply/demand fundamentals kept prices
up and pushed our nitrogen gross margin to a record high of $242.8 million, 26 percent more than
the previous year. The significance of this improvement should not be overlooked, as our 2003
nitrogen margin was aided by the sale of our natural gas hedges at the peak of the market. Phosphate remained a challenging business, with continued excess supply in DAP, one of our four
main product lines. Although higher input costs negatively impacted results,




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5 POTASHCORP 2004 ANNUAL REPORT  |  LETTER TO SHAREHOLDERS   gross margin in this nutrient did recover from a loss of $16.5 million in 2003 to contribute $15.8
million in 2004. More importantly, our fourth-quarter gross margin of $10.4 million bodes well for
2005. As a result, PotashCorps total gross margin grew to $681.4 million, operating income to $514.3
million and net income to $298.6 million. This led to earnings of $2.70 per diluted share. We
generated $649.6 million in cash from operating activities, showing that strong cash flow remains a
hallmark of PotashCorp. This was accomplished despite the continued strengthening of the Canadian dollar, which began 2004
at 1.29 against the US dollar and closed at 1.20. Record potash production reduced our cost per
tonne by 5 percent on a real basis, but the higher value of the Canadian dollar against its US
counterpart hurt translated costs. While this had a negative effect on gross margin, the biggest
earnings impact was primarily non-cash, due to the translation of certain items on our balance
sheet. In total, the strong Canadian dollar reduced annual earnings by $0.16 per share. In July, our Board of Directors approved a two-for-one stock split and raised our dividend by 20
percent. Our shares increased by 92.1 percent on the New York Stock Exchange in 2004. This compares
to an increase of 10.5 percent for the Dow Jones Basic Materials Index and an average of 66.5
percent for other companies in our sector. Once again we achieved our goal of outperforming our
industry peers and other basic materials companies. Potash Triggers Growth This was the third consecutive year of above-average growth for potash in offshore markets. We have
emerged from a period of significant oversupply that began in the early 1980s and was exacerbated
by the collapse of the Soviet Union. For nearly two decades, PotashCorp stuck to a strategy of
matching production to demand, confident that the continued need for our products would drive world
growth and eventually absorb the capacity overhang. Our patience was rewarded as we sold 17 percent
more potash at prices 29 percent higher than in 2003.
 (PERFORMANCE BAR CHART) A key driver is the rapid GDP growth in many Asian and Latin American nations. Among our major
customers, Chinas economy grew 9 percent in 2004, Indias 6 percent and Brazils 4 percent.
Several foreign currencies rose against the US dollar, giving customers in those countries greater
buying power and the ability to purchase more potash. In the past, farmers in many agricultural economies applied nitrogen and phosphate at higher levels
than potash. Now those countries are trying to catch up, especially in Southeast Asia where
Indonesia, India, Malaysia, Vietnam, Thailand and Taiwan are becoming bigger customers. This accelerating demand has pushed the rest of our industry to its production limits. Excluding
PotashCorp, producers operated at approximately 98 percent of capacity in 2004. We operated at 65
percent of our maximum production rate. With 86 percent of the worlds unused capacity, we are in
the enviable position of being the only producer able to bring on significant additional capacity
in a timely manner. In the second half of 2004, we took steps to utilize this strength. We added fourth shifts at
Lanigan and Allan, which enables them to operate around the clock and will increase annual
production by 1.2 million tonnes. We continued work on an $80-million expansion




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6 POTASHCORP 2004 ANNUAL REPORT  |  LETTER TO SHAREHOLDERS   at Rocanville, which began producing in the first quarter of 2005. This raises our annual
production capacity by 400,000 tonnes. Further projects in Saskatchewan and New Brunswick are being
assessed with a view to being able to operate at full capacity  now 12.5 million tonnes  within
three years. Playing to Our Strengths We also worked to leverage our unique strengths in nitrogen and phosphate, focusing on areas
that offer the greatest returns. North American gas costs continued to rise in 2004, leading to further reductions in domestic
nitrogen production and more imports to the United States. Fertilizer and industrial demand
remained strong and capacity additions did not keep pace with consumption growth. The resulting
tight supply/demand drove our ammonia prices up by 23 percent, urea 18 percent and nitrogen
solutions 29 percent. These conditions demonstrated the value of our facility in Trinidad, where we have long-term,
advantageous gas contracts that give PotashCorp a significant edge. We are building on that
advantage with expansions at our four plants that together will add
 270,000 tonnes of
ammonia capacity for $71 million, less than half the cost of new capacity. This will give us the most
low-cost offshore production capability of any producer in the Western Hemisphere. All expansions
will be completed by the third quarter of 2006. In phosphate, we are focused on specialty products to offset the cyclicality of the fertilizer
business. However, start-up problems at our new DFP (poultry feed) plant at Aurora cost $9 million.
We have worked to resolve them, and the facility should operate at capacity in 2005. We did
demonstrate our unique strength in purified acid, a high-margin industrial product. PotashCorp is
the only company with local access to the quality rock preferred for low-cost purified acid
production. The lack of high-quality ore is a barrier for other phosphate producers. We have increased our focus on industrial production, the area of phosphate furthest removed from
commodity cycles. Industrial volumes rose 13 percent and prices 4 percent. We are pursuing a
greater share of this high-margin market, investing $73 million at Aurora to add 82,000 tonnes of
purified acid production per year. This expansion should be operational by 2006.
   (THE K FACTOR)




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7 POTASHCORP 2004 ANNUAL REPORT  |  LETTER TO SHAREHOLDERS   The Chain Continues As we look forward to 2005, it is clear that potash will be the value driver in the fertilizer
industry as offshore markets continue to grow. With our global position, we expect to be the main
beneficiary. That was certainly the case in 2004, when we brought on an additional 0.8 million
tonnes of production. We plan to do more in 2005. Our anticipation of further volume growth at higher prices was validated when Sinochem in China
signed a 2005 contract with Canpotex. This agreement is expected to increase Chinas Canadian
potash imports from 1.8 million tonnes to 2.3 million tonnes at prices at least $40 per tonne
higher than in 2004. Chinas total consumption in 2005 will rival that of the United States,
historically the worlds largest potash consumer. In nitrogen, anticipated high natural gas prices in the United States and Europe are expected to
keep some production shuttered. Limited new capacity is projected and this, combined with strong
demand, should maintain high prices for nitrogen products and enhance the value of our Trinidad
asset. In phosphate, better supply/demand fundamentals in feed and purified acid should translate into
higher prices and better returns. Still, the phosphate fertilizer industry suffers from oversupply,
although a mid-term DAP recovery is possible with industry consolidation. Over the longer term, all three nutrients  but especially potash  will benefit from the chain of
events unfolding in Asia and Latin America. Brazil, an agricultural powerhouse and our largest
offshore potash customer, continues to bring acres into production in the cerrado region, where
soils are naturally low in potassium and the climate is ideal for growing soybeans. That is important given Chinas rapidly increasing demand for soybeans  a crop that provides an
important protein source for livestock as well as oil for cooking. Chinas population now expects a
healthier, protein-rich diet and will not return to starch as its food staple. More soybeans and
other grains will be needed for animal consumption.
 (SAFETY FREQUENCY GRAPH) This happens as world grain stocks are precariously low. Farmers around the world produced a huge
crop in 2004, but it did little to raise grain inventories since consumption rose as well. The need
for increased crop production is kickstarting the fertilizer industry. Of the three nutrients, potash has the greatest growth potential as farmers have not applied enough
of it compared to nitrogen and phosphate. For example, China would need to double its ratio of
potash to other nutrients just to catch up to the US and could go even further to meet its
scientifically recommended needs. India would need to more than triple potash applications to meet
its recommended ratio, which translates to an additional 7.5 million tonnes. Brazil could increase
consumption by as much as 50 percent. These regions have little or no indigenous production and
must rely on imports from an industry that, exclusive of PotashCorp, is running full out. Tight fundamentals and our historical practice of matching supply to demand have enabled potash to
decouple from the grain cycle and position it best among the three nutrients. While we expect
continuing vigorous competition as other producers strive to generate additional capacity by
debottlenecking, we dont anticipate any significant new greenfield production in the short- to
mid-term.




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8 POTASHCORP 2004 ANNUAL REPORT  |  LETTER TO SHAREHOLDERS   Available reserves are restricted to a few locations and the high cost and long lead time for
a new mine prevent the volatile swings of a typical commodity cycle. We know there will be some
fluctuations in our outward growth line, with either temporarily reduced consumption or competitive
debottlenecking. However, we believe demand will continue to rise, taking our earnings with it. We
will remain faithful to our strategy of matching production to demand, which served us well in the
past and will do so in the future. PotashCorp spent years preparing for todays conditions. We have added to our Saskatchewan base
with strategic investments in New Brunswick, Chile, Jordan and Israel that expand our global potash
presence. Late in 2004, we increased our ownership in SQM in Chile from 20 percent to 25 percent.
We are well placed to capitalize on our own potash position as well as on these investments. They
have performed well and their value will become more evident in the years to come. Now, more than ever, the world is looking to PotashCorp. We have the people, production facilities
and excess capacity to answer the call. Excellence in All Areas One of our core values is to seek continuous improvement and in 2004 we pursued that in all areas
of our business, with the objective of becoming a stronger company for our stakeholders. The first priority is safety, as our people are at the heart of our success. We have a goal of no
harm to people, no accidents and no damage to the environment. PotashCorps employees have embraced
this and moved us closer to our goal by reducing our recordable injury frequency rate for the third
year in a row. In addition, our potash operations in New Brunswick earned the John T. Ryan trophy,
the Canadian mining industrys most prestigious safety honor. Our environmental efforts were also
recognized, as Aurora was honored with North Carolinas Mining Stewardship Award for reclamation. Cognizant of our companys global responsibilities, we quickly donated $1 million to the relief
effort after a tsunami struck Southeast Asia in December. Of that total, $250,000 was set aside to
match donations
 from our employees  yet another example of how our people rise to a challenge and
step forward whenever and wherever they are needed. Those values drive the ongoing advancement of our business. In 2004, we issued our second annual
sustainability report, detailing our economic, social and environmental performance. This is part
of a corporate reporting program designed to increase transparency and ensure we are responsible
and accountable. These efforts led the Canadian Institute of Chartered Accountants to recognize
PotashCorp as having the best corporate reporting program in Canada. The CICA selected our 2003
annual report as the best in Canadas mining industry and one of
the top two in all sectors. It also
presented us with top honors for sustainability reporting and for our website, www.potashcorp.com. All of these accomplishments are made possible by a Board of Directors focused on making PotashCorp
not only the best company in our industry but a shining example for the corporate world. We have a
dynamic board that sets high standards, demonstrates its stated commitment to best practices and
leads with a vision of greater success for PotashCorp. In January 2005, it approved a plan to
repurchase up to 5 percent of our outstanding common shares, which will allow us to reinvest in our
potash business. Our approach is opening new doors, such as increased opportunities for our people who have assumed
management responsibilities with APC in Jordan. We are extending our reach and knowledge around the
world  and that will bring benefits to all our stakeholders. We continue to put in place more pieces that will lead to ongoing success for our company. In 2004,
we enjoyed a tremendous year, but we believe it was only the beginning. At PotashCorp, our time has
come. (-s-William J. Doyle) William J. Doyle
President and Chief Executive Officer
February 28, 2005




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9 POTASHCORP 2004 ANNUAL REPORT  |  GOALS AND TARGETS 
 OurLong-term
    
    achieved   ()partially achieved   ()did not achieve   ()Goals
Our business goals are linked to the philosophy at the heart of PotashCorp. We believe in
accountability and hope our targets and performance encourage discussion with our stakeholders.
 To continue to outperform our sector and other basic materials companies
in total shareholder return.2004 Targets
    
    2004 Results
    
    
    2005 TargetsExceed total shareholder return performance of the
companies on the Dow Jones Basic Materials Index (DJBMI).
    

()
PotashCorp provided total shareholder return of 93.4 percent,
compared to 13.1 percent for the DJBMI.
    
    
    1Exceed total shareholder return performance for our sector and companies on the DJBMI for 2005 and three-year average.Be at the top of our earnings guidance range.
    
    ()
Achieved adjusted earnings per diluted share* of $2.42,
exceeding initial guidance of $1.35 to $1.75 (adjusted for stock
split).
    
    
    2Be the preferred fertilizer investment as measured by surveys.Work with the management and
board of APC to improve its
shareholder return.
    
    ()
APC increased its shareholder return by 137 percent.
    
    

3Non-cash operating working capital to be less than
10 percent of net sales.4Total cash flow return to exceed cost of capital by 500 basis points.Maintain non-cash operating working capital* at year-end rates.
    
    ()
More than achieved as non-cash operating working capital
declined by 47 percent to $185 million.
    
    
    5Carry higher multiple than average of other fertilizer companies on both earnings and cash flow.Total cash flow return* to exceed cost of capital by 200 basis
points.
    
    ()
Cash flow return exceeded cost of capital by 400 basis points.
    
    
    6Exceed five-year average of historical gross margin as a percentage of net sales.Exceed five-year average of historical gross margin as a
percentage of net sales*.
    
    ()
Achieved 23.5 percent compared to five-year average of 18.6
percent.
    
    
    7Be at the top of our earnings guidance range.
 To remain the leader and preferred supplier of potash, phosphate and nitrogen products worldwide.2004 Targets
    
    2004 Results
    
    
    2005 TargetsContinue to be the preferred supplier, as measured by customer surveys.
    
    ()
Customers evaluated PotashCorp as No. 1 on a series of sales criteria,
and we outperformed the competition.
    
    

1Increase potash sales volumes by 5 percent at 25 percent higher
realized prices.Reduce the number of customer complaints by 5 percent.
    
    ()
PotashCorp reduced customer complaints by 10 percent.
    
    

2Industrial nitrogen net sales from US
plants to comprise 70 percent of the total from those plants.Increase total potash sales volumes by 5 percent at 5 percent higher realized
prices.
    
    ()
Sales volumes increased by 17 percent and realized prices by 29 percent.
    
    
    3Increase North American feed realized prices by 15 percent.4Increase
purified acid price realizations by 5 percent.Increase purified acid sales by 12 percent.
    
    ()
Purified acid sales volumes increased 25 percent; net sales* up 24 percent.
    
    
    5Implement enterprise-wide customer complaint system to
facilitate tracking and resolution.Increase North American industrial
nitrogen sales volumes to 60 percent
of total nitrogen sales.
    
    ()
North American industrial nitrogen sales represented 67 percent of total
North American nitrogen sales volumes.
    
    
    6Outperform competitors on quality and
service as
measured by customer surveys.7Expand computer applications e-mail capabilities to
improve communications with customers and vendors.Increase DFP volumes by 18 percent at 16 percent higher realized prices.
    
    ()
DFP volumes increased 31 percent at 16 percent higher realized prices.




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10 POTASHCORP 2004 ANNUAL REPORT  |  GOALS AND TARGETS To be the low-cost supplier in our industry.2004 Targets
    
    2004 Results
    
    
    2005 TargetsReduce per-tonne conversion costs in
each of our three nutrients by 5 percent.
    
    ()
Costs were reduced in potash by 3 percent (on a Canadian dollar basis); in
nitrogen by 3 percent; and in phosphate by 1 percent.
    
    
    1Achieve rock costs at Aurora and White Springs
5 percent below 2004.Reduce phosphate rock costs by 5 percent.
    
    ()
Phosphate rock costs were reduced by 1 percent.
    
    
    2Achieve conversion costs for
P2O5 production 4 percent better than 2004.Achieve average natural gas input costs
in North America 10 percent below the
average NYMEX spot price.
    
    ()
Achieved savings of 13 percent relative to NYMEX.
    
    
    3Achieve 5-percent reduction in per-tonne potash
conversion costs on a Canadian dollar basis.4Achieve energy efficiency in nitrogen 2 percent better than 2004.Implement supply-chain management process.
    
    ()
Nitrogen implementation was completed in 2004; potash and phosphate
implementations are scheduled for 2005.
    
    
    5Operate the Aurora DFP plant at design capacity.Reduce North American transportation and
distribution expenses by 5 percent.
    
    ()
Reduced North American transportation and distribution expenses by 4.2 percent.
    
    
    6Yield a 3-percent saving in transportation and
 distribution from industry benchmark.Realize expected saving from negotiated
medical plan design.
    


    ()
Changes in the medical plan were implemented, resulting in savings that
exceeded expectations. Annual savings are projected to be
$800,000.
 To move closer to our goal of no harm to people, no accidents, no damage to the environment.2004 Targets
    
    2004 Results
    
    
    2005 TargetsReduce recordable and lost-time injury frequency rates by 10 percent.
    
    ()
PotashCorps
recordable injury
frequency rate
dropped by more
than 13 percent and
the lost-time
injury rate fell 21
percent.
    
    
    1Reduce recordable
and lost-time
injury rates by 10
percent.Reduce the number of environmental releases and permit excursions by 10
percent.
    
    ()
Total environmental
releases (18) and
permit excursions
(31) were 25
percent higher due
to issues at our
Lima nitrogen
plant.
    
    
    2Reduce reported
releases and permit
excursions by 25
percent.Implement proactive facility security plans addressing current and
anticipated security regulations.
    
    ()
All high-risk
facilities (US and
Trinidad nitrogen)
have security plans
in place.
    
    
    3Achieve
100-percent
compliance on all
environmental and
safety audit action items.Through the use of effective management processes, continue to avoid
major adverse incidents.
    
    ()
By designing,
implementing and
auditing safety
processes and
action plans,
PotashCorp avoided
major adverse
incidents.
 (PICTURE)




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11 POTASHCORP 2004 ANNUAL REPORT   |   GOALS AND TARGETS To
have motivated and productive employees committed to our long-term
goals.2004 Targets
    
    2004 Results
    
    
    2005 TargetsImplement key corporate performance metrics.
    
    ()
Senior management utilized a balanced scorecard approach
to develop a system for tracking and reporting on key
performance indicators in operations, sales, finance,
investor relations and human resources. This system will be
rolled out in 2005.
    
    
    1Integrate key
corporate
performance metrics
into regular
employee reviews,
providing managers
with greater
discretion to
reward individual
achievement.Implement employee incentives that tie
compensation more directly to the achievement of
key corporate financial performance measures.
    
    ()
A performance-related contribution to savings plans for
non-union employees was introduced, based on cash flow
return* exceeding weighted average cost of capital*. A
redesigned stock-option program focusing on long-term
achievement will be presented to shareholders for approval.
    
    
    2Proactively
improve orientation
programs for new
employees and
career development
processes for
existing employees.Complete implementation of succession management
and employee development processes to improve
focus on key talent and critical shortages.
    
    ()
Succession management continued at the board level.
Identification of key talent, critical positions and
development is now an ongoing component of senior
management discussions.
    
    
    3Complete
implementation of a
human resources
administration
system enabled by
information
technology.Complete implementation of a human
resources administration system
enabled by information technology.
    
    ()
By January 2005, half of US payrolls had been shifted to the
new system and all other components were in place for US
administration. Implementation of the remaining components
for Canada will be completed in 2005.
    
    
    4Maintain personnel turnover
improvements achieved in 2004 in
Trinidad.Reduce employee turnover in the Trinidad segment.
    
    ()
Turnover at Trinidad was successfully reduced by
40 percent.
 To
have a positive impact on the communities in which we
operate.2004 Targets
    
    2004 Results
    
    
    2005 TargetsBe engaged with
community support
projects at each of
our plants and
offices.
    
    ()
Each of our plants
and offices completed
many community
support volunteer
projects.
    
    
    1Be in the top
quartile of responses
in a survey of
community leaders.Develop emergency
management and crisis
communication plans
for Saskatoon and
Northbrook offices.
    
    ()
The emergency
management plans for
Saskatoon and
Northbrook offices
are in draft form.
The crisis
communication plan is
complete. Emergency
management and crisis
communication plans
are in place at all
plant facilities.
    
    
    2Be engaged with community support
projects at each of our plants and offices.3Achieve a
10-percent increase
in individual
participation in the
matching gift program
and a 20-percent
increase in total
donations.Conduct a review of
governance policies
and principles to
identify and
implement most recent
best practices.
    
    ()
PotashCorps
governance policies
and practices were
recognized as among
the top 7 percent of
companies by
Governance Metrics
International.
    
    
    4Remain in the top
quartile of
governance practices
as measured by
external reviews.
  In January 2005, PotashCorps phosphate operation at Aurora won the North Carolina Mining
Stewardship Award for its reclamation efforts at Whitehurst Creek. The restoration included enhancements to the aquatic culture and stream system, and
the area is once again home to fish, birds and
wildlife.
    
    achieved   ()partially achieved   ()did not achieve   ()




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12 POTASHCORP 2004 ANNUAL REPORT  |  SUSTAINABILITY 
  Sustainability     and               Success At PotashCorp, we recognize that business success and sustainability are intertwined. We are
building sustainable business practices into our management systems as we weave the policies and
principles of sustainability into our company culture. This requires well-defined expectations that
take into account the concerns of our stakeholders, and goals that move us forward as a sustainable
enterprise. Governance To be sustainable, a company must clearly define the roles and responsibilities of its board and
management as well as its relationships with stakeholders. Our Board of Directors follows a charter
that sets out its responsibilities and the limits to managements responsibilities, and adheres to
a comprehensive statement of governance principles that addresses key issues, including: board
independence and integrity; functions of the board; selection and composition of the board; and
board committees. PotashCorps board is specifically charged with:  o
    oversight and approval on an ongoing basis of the corporations business strategy;  o
    appointment of the Chief Executive Officer and monitoring his or her performance;  o
    approving the appointment of all corporate officers;  o
    establishing standards for management and monitoring performance; and  o
    approving procedures for strategy implementation, for identifying and managing risks and for ensuring the integrity of internal
control and management information systems. Management Systems At the management level, we continue to advance management systems designed to support continuous
improvement. Our corporate disclosure policy, which was adopted before it was required, ensures
 (TRANSPARENCY CREATES CREDIBILITY PICTURE) all shareholders have equal access to information. We have a comprehensive purchasing policy that links
procurement, in part, to considerations of community development. Our Safety, Health and
Environment Management System outlines our requirements and expectations in areas such as safety
and accident prevention, pollution, energy conservation and product stewardship. This has
contributed to improved safety performance and a reduction in the recordable injury frequency rate
for three consecutive years. Code of Conduct Our statement of core values and code of business conduct make clear that honesty, transparency,
integrity and respect for the law are fundamental to the way our company and our people operate.
This has been communicated to all employees through meetings and ongoing dialogue. Employees sign
off on having a thorough understanding of how PotashCorps values and code of conduct affect the
way they do their jobs, fostering a culture of responsibility and accountability.




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13 POTASHCORP 2004 ANNUAL REPORT  |  SUSTAINABILITY CONNECTING WITH STAKEHOLDERS: Sustainability does not live inside a company; it acknowledges the needs
and interests of all stakeholders. PotashCorp maintains a dialogue with people affected by our operations, providing forums
to share our strategies and the resulting benefits. This is also an important risk-management tool that can identify areas of
concern before problems arise. We rely on independent research to gather feedback and insight into stakeholder perceptions and interests.Customers
    
    
    Employeeso  say product quality is the key
factor in buying decisions, after
priceo  those surveyed ranked
PotashCorp No. 1 in product
quality in each of our four major
product areas
    
    
    o  list PotashCorps integrity as an
important factor in their continuous
improvement efforts and positive
view of the companyo  those surveyed reported a high
level of overall engagementInvestors
    
    
    Communitieso  believe PotashCorp has the
attributes of a growth companyo  those surveyed valued our Potash
First strategy, which is
well-matched to these attributes
    
    
    o  respect our long-term approach to
business, strong safety and
environmental performance and the
work we do in the communityo  those surveyed supported the
expansion of our business
 LEADING BY EXAMPLE: Actions speak louder than words  and PotashCorp demonstrates social
responsibility in areas that are important to our stakeholders. Through financial support,
volunteerism and corporate leadership, we are actively involved in the communities where we live
and work.Financial
Less than one week
after a tsunami
devastated regions of
Southeast Asia in
December 2004,
PotashCorp announced
a $1-million donation
to the relief effort,
including $250,000 to
match donations from
our employees.
The practice of
matching donations
brings a sense of
partnership to our
giving practices, as
our financial support
goes to causes our
stakeholders consider
important. For
example, in
Saskatchewan we
pledged $1.5 million
to match community
donations to a
health-care
initiative.
    
    
    Volunteerism
Volunteerism connects
PotashCorp to our
communities. At
Aurora, our people
answered telephones
and recorded pledges
at the Childrens
Miracle Network
telethon,
contributing to a
record-breaking
effort that raised
more than $1.25
million.
At Joplin, PotashCorp
employees read to
elementary school
students on a regular
basis, while
Saskatoon and
Northbrook employees
teamed up on the
construction of a
house as part of
Habitat for
Humanitys Women
Build day.
    
    
    Leadership
Our people rise to
the occasion when
assistance is needed.
After Hurricane Ivan
destroyed more than
90 percent of the
homes in Grenada,
employees in Trinidad
gathered food,
clothing and water,
and collected money
to purchase tarps for
temporary shelters.
PotashCorp sponsored
a series of anti-drug
talks by D.D. Lewis,
an employee and
former NFL star, that
reached more than
17,000
students in 2004. Our
people also led the
creation of a
Saskatchewan chapter
of the Institute of
Corporate Directors
to enhance
governance.(PICTURE)
    
    
    (PICTURE)
    
    
    (PICTURE)




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14 POTASHCORP 2004 ANNUAL
REPORT  |   MD&A 
  Managements     Discussion &                    Analysis of Financial Condition and Results of Operations (in US Dollars)
 The following discussion and analysis is the responsibility of management and is as of February 28,
2005. The Board of Directors carries out its responsibility for review of this disclosure
principally through its audit committee, comprised exclusively of independent directors. The audit
committee reviews this disclosure and recommends its approval by the Board of Directors. Additional
information relating to us (which is not incorporated by reference herein) can be found on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov.
 Special things to watch for:26
    Factors that shaped 2004 business conditionsWorld economic growth and specific conditions that affected the entire
fertilizer industry last year.28
    Earnings reviewOur 2004 earnings exceeded our guidance and 2003 results. This section
explains the variances in detail on a per-share basis.44
    Risk managementA more integrated risk-management framework was introduced, and here
are the details.50
    Key earnings sensitivitiesKey factors and their effect on earnings per share.50
    Indicators to watch in 2005These are our best estimates of factors that could affect our industry
and our performance in the year to come.
   (DESCRIPTION OF SECTIONS)




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15 POTASHCORP 2004 ANNUAL
REPORT  |  MD&A
 N, P & K and PotashCorp Facts BUSINESS Different nutrients, different attributes (ATTRIBUTES OF NUTRIENTS) Different nutrients, different business environments (APPLE)
    
    Potash (K)
    
    Phosphate (P)
    
    Nitrogen (N)Base Product
    
    Potassium chloride
    
    Phosphate rock
 phosphoric acid
    
    AmmoniaGeographic Availability
of Raw Materials 1
    
    Very limited
    
    Limited
    
    Readily available in
numerouslocations (natural gas)Cost of New Capacity 2
    
    Approximately $500 millionfor 1 million tonnes KCl
    
    Approximately $1 billionfor
1 million tonnes
P2O5
    
    Approximately $500 million
for 1 million tonnes ammoniaGreenfield 3Development Time 4
    
    5 years
    
    3 years
    
    2 yearsProducing Countries 5
    
    12
    
    41 (based on phosphoric acid)
    
    Approximately 60State- or Subsidy-
Controlled Production 6
    
    14%
    
    44%
    
    50%Industry Operating Rate 7
    
    91%
    
    74%
    
    82%PotashCorp Capacity 8
    
    12.5 million tonnes
potash*
23% of world capacity
    
2.5 million
tonnesphosphoric acid
    
    3.9 million tonnes ammonia
2% of world capacity6%
of world capacityPotashCorp World Position
by Capacity 9
    
    # 1
    
    # 3
    
    # 4
 * Increased from 12.1 million tonnes by expansion completed in first quarter of 2005.
    
    1-9, See Appendix Page 51




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16 POTASHCORP 2004 ANNUAL REPORT  | MD&A  Our Business Environment BUSINESS Our Business Environment (DEMAND DRIVERS)  As the worlds largest
producer, by capacity, of the three primary plant nutrients  potash,
phosphate and nitrogen  PotashCorp has built a global business on these natural nutrients. Our
products serve three different markets: fertilizer, feed and industrial. All three nutrients are
important in fertilizer, with phosphate the biggest player in the feed market. In the industrial
market, phosphate and nitrogen products play the major role. (PICTURE) We sell fertilizer to North American retailers, cooperatives and distributors that provide storage
and application services to farmers, the end users. Our offshore customers are governments and
private importers that tend to buy under contract, while spot sales are more prevalent in North
America. Key offshore customers include Brazil, China, Japan, Malaysia and Indonesia. Fertilizers
are sold primarily for spring and fall application in both northern and southern hemispheres. In
North America, all three nutrients are used on (PICTURE)
 corn, wheat, cotton and rice, while
nitrogen-producing soybeans require potash and phosphate. This is also true offshore, although
potash is used extensively on a broader range of crops there, including oil palm, sugarcane and
coffee. Transportation is an important part of the final purchase price for fertilizer so producers usually
sell to the closest customers. In North America, we sell mainly on a delivered basis via rail,
barge, truck and pipeline. Offshore customers purchase product either at the port where it is loaded or with freight included.
Approximately 60 percent of our potash customers buy it freight included (CFR) and the remainder
are responsible for ocean freight (FOB). In phosphate, the majority of offshore sales are FOB. Our
nitrogen is sold primarily in North America. Our feed customers are mainly US bulk feed producers, with Brazil and Mexico the biggest offshore
customers. Our industrial customers are primarily based in the US, and include industrial
intermediate and product manufacturers such as Astaris and Innophos in phosphate and BASF and DSM
in nitrogen. Most feed and industrial sales are by contract and are more evenly distributed
throughout the year than fertilizer sales. In all product categories (fertilizer, feed and industrial products), price is the most important
variable in the buying decision. North American customer surveys indicate that product quality is
the next most important factor when a supplier is being chosen. Customers specific needs also
affect their buying decisions. For example, in Japan, where our potash products are commonly used
in industrial applications, quality is a significant factor. In Brazil, granular potash to blend
with the other nutrients is key.




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17 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Vision / Strategy BUSINESS Vision  We envision PotashCorp as a long-term business enterprise providing superior value to all our
stakeholders. To achieve this, we believe we need to be the sustainable gross margin leader in the
products we sell and the markets we serve. Through our strategy, we attempt to minimize the natural volatility of our business. Risk rises
with volatility and we believe the capital markets will assign a better earnings multiple to a
growth company with lower risk. We also strive for increased earnings, and to outperform our peer
group and other basic materials companies in total shareholder return, a key measure of any
companys value. We link our financial performance with areas of extended responsibility: the environment, our
social and economic stakeholders. We focus on increased transparency to improve our relationships
with all our stakeholders, believing this gives us a competitive advantage. Strategy Our strategy is based on our commitment to seek earnings growth and quality. We strive to build
value with reduced volatility and we reduce volatility by doing all we can to strengthen our potash
business, hence our Potash First strategy. Our goal is to be the low-cost global potash supplier on
a delivered basis into all key world markets. We supplement this potash strategy by leveraging our
strengths in nitrogen with our lower-cost gas in Trinidad, and our specialty phosphate products,
particularly the industrial product, purified acid, produced in North Carolina.
 (STRATEGIC POSITIONING CHART) In our day-to-day actions, we seek to maximize gross margin by focusing on the right blend of
price, volumes and asset utilization. Our highest-margin products
 potash, purified phosphoric
acid and Trinidad nitrogen products  drive our strategy, and we strive to grow the business by
enhancing our position as supplier of choice. We aim to build on our strengths by acquiring and
maintaining low-cost, high-quality capacity that complements our existing assets and adds strategic
value. Our decisions are based on our cash flow return materially exceeding cost of capital.
   (PRODUCTION CHARTS)




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18 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Potash BUSINESS PotashCorp in the World Potash Scene  Around the world, potash deposits that can be mined economically are limited to a few countries.
There are only 12 producing countries, more than 150 consuming countries, and over 80 percent of
the product crosses borders. The primary producing areas 
Canada, Russia and Belarus  account for
two-thirds of world production. The US, a mature market, is the largest potash importer. The
greatest growth markets are nations with limited or no indigenous production, such as Brazil, China
and India. PotashCorp is a prominent supplier to these markets. Our major competitors in North America are Agrium and Mosaic, which have more exposure to North
American sales than we do. Globally, we compete with producers in Belarus, Russia, Germany and
Israel in the key growing markets of Asia and Latin America. STRATEGY: Using excess capacity to build on global leadership Our strategy in potash is designed to capture the benefits of our excess capacity. We match supply
to demand to minimize inventory overhang and we believe price and margin are more important than
volumes. We focus on maintaining our low-cost position both in production and on a delivered basis.
We expect to use our excess capacity and make capital investments as necessary to seamlessly
provide the world with the appropriate amount of potash as consumption grows. Growth in demand over the
last three years (4.0 percent in 2002, 7.6 percent in 2003 and 9.9
percent in 2004) has absorbed nearly all of (BAR CHART)
 the worlds excess capacity exclusive of PotashCorp.
The threat of major new capacity in the form of a new mine is somewhat constrained, as we believe
there are few geographic opportunities. According to industry consultants, a 2-million tonne
greenfield operation would require approximately $1 billion in capital and a five-year lead time.
We believe current potash margins do not support such investments. Our competitors are debottlenecking and doing incremental expansions where possible, but none can
bring up significant capacity as quickly and economically as we can. Whats more, their announced  STRENGTHS:o
    86 percent of world excess capacity to respond to growing world consumptiono
    Excess capacity can be brought on stream quickly with modest capital outlayo
    Low-cost, flexible production with smaller percentage of fixed costso
    Long-term reserves from existing shaftso
    Greater sales exposure in growing offshore marketo
    Few world producers, reduced government controlo
    Stable pricing historically with current upward trendo
    High cost and long lead time to build greenfield capacityo
    No greenfield operations initiated, providing us with a multi-year windowo
    No substitutable products for potashWEAKNESSES:o
    Competitors will continue with low-cost incremental expansionso
    High provincial resource taxes (Saskatchewan) and federal income taxes relative to global competitorso
    High freight costs to ship Saskatchewan potash to porto
    Exposure to Canadian dollar volatilityo
    Currently high ocean freight costso
    Water inflow continues to hurt New Brunswick marginso
    Potential for rail transportation bottlenecksOPPORTUNITIES:o
    Ability to optimize excess capacity quickly and competitivelyo
    Our competitors are operating at capacity, which should allow us to benefit from a significant portion of accelerated growtho
    New deposit found in New Brunswick could resolve water inflow problem and allow expansion in a lower-tax environmento
    Strategic acquisitions of other low-cost production in the world, including adding to our existing investments in APC, SQM and ICLTHREATS:o
    Current upward trend in pricing could encourage new greenfield operationso
    Competitors debottlenecking of existing plants with a simultaneous drop in demand could offset potential market growth for us




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19 POTASHCORP 2004 ANNUAL REPORT  |  MD&A Potash BUSINESS   debottlenecking plans amount to approximately 2 million tonnes in the next six years, while the
historical growth rate of 2 percent suggests 7 million tonnes will be required. We expect customers
to turn to us to meet the majority of continuing growth in world consumption. As we increase our
operating rate, we expect to be able to capitalize on our three leverage points of increased sales
volumes, lower per-unit costs and higher sales prices. This leverage is further enhanced by our
investments in other potassium-based companies: SQM, APC and ICL. Transportation costs are increasingly important and our sales strategy is built with customer
proximity in mind. We are advantaged supplying Asia and the US from our Saskatchewan operations and
South and Central America from New Brunswick. This allows for quicker and more cost-efficient
delivery to some key markets  an important factor as ocean freight rates climbed to unprecedented
levels in 2003 and stayed high throughout 2004. Offshore sales of our Saskatchewan potash are handled through our membership in Canpotex, which
minimizes transportation and marketing costs. Approximately 60 percent of Canpotex sales are made
on a delivered basis, meaning it pays the freight. Domestically, our strategy relies on a
distribution network in the US and Canada that allows timely delivery to high-demand spring and
fall markets. We optimize these systems, attempting to get the lowest freight rates possible. Shifts in foreign currencies can affect our margins. As currencies, including the Canadian dollar,
strengthen against the US dollar, translated production costs rise. With higher freight rates, this
could (OPERATING RATE LINE CHART)
 impact margins. Investments in companies such as APC have the advantage of providing a
natural hedge against rising freight costs and currency fluctuations, as the Jordanian dinar is
pegged to the US dollar. PotashCorp will continue to review investment opportunities that offer freight advantages, provide
economic hedges and expand our enterprise. We will also explore opportunities in upgraded potash
(which offers higher returns and less volatility), consistent with our investment in SQM, the
worlds largest producer of specialty upgraded potash products. We believe the strategic
positioning of our existing potash operations and investments places us in the targeted top right
quadrant. CAPABILITY TO DELIVER In potash, the ability to bring on excess capacity in a timely manner is key to our growing
profitability. Tight global supply is increasing the need for potash production. In 2004, we went
to four shifts at our Lanigan and Allan mines and reduced inventory shutdown weeks by nearly
one-third, to 28 weeks. This increased our production to almost 8 million tonnes from 7.1 million
tonnes in 2003. In 2005, we will have the capability to produce 9.6 million tonnes. This would
reflect a full year of four shifts at Lanigan and Allan and, if demand warrants, further reduction
in inventory shutdown weeks and vacation/maintenance shutdowns. It also reflects the 400,000-tonne,
$80-million expansion at Rocanville. Our ability to bring this capacity on quickly is unmatched in
our industry  especially with virtually no capital costs other than the Rocanville expansion. As markets continue to grow, we can add another 2.9 million tonnes of capacity at a current
estimated cost of $300 million. This represents one-fifth of the cost of developing the same amount
of new greenfield capacity. Engineering design work is being conducted to evaluate a number of
projects in Saskatchewan and New Brunswick to determine the optimum mix, with a view to being able
to operate at full stated capacity of 12.5 million tonnes within three years, if the market
requires. We have also recognized the growing demand for granular product by customers in areas such as
Brazil. With the expansion at Rocanville on stream, we are able to produce 1.5 million tonnes of
granular product there to help meet the needs of these key customers. A further expansion to the
compaction capability at Rocanville is currently under way. It will facilitate the production of an
additional 0.5 million tonnes per year and is scheduled for completion in August 2005.




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20 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Phosphate BUSINESS PotashCorp in the World Phosphate Scene  Phosphate is produced in 41 countries, with the United States the biggest producer, followed by
China, Morocco and Russia. World capacity of the major phosphate fertilizer product, diammonium
phosphate (DAP), has surged in recent years, and approximately 42 percent is traded across borders.
US DAP production was built predicated on exports and historically much of it went to India and
China, which are now developing their domestic production behind protective trade barriers. The
current excess capacity for DAP production relative to consumption is depressing prices.
Governments influence a significant proportion of world capacity through subsidy control or
ownership, or by overproducing and accepting negligible to negative returns to support employment. In North America, our major competitor for both fertilizer and feed products is Mosaic (formerly
IMC Global and Cargill Crop Nutrition, which merged in October 2004), while imports from Morocco
and Israel compete for industrial sales. In offshore markets, competition for fertilizer sales
comes from indigenous producers in India and China and from other global producers. In China,
indigenous producers compete for feed sales. STRATEGY: Strength through diversification In phosphate, we work to maximize the benefits of our long-term rock position, multi-year mining
permits and high-quality rock that enables low-cost production and product diversity. The quality
of our rock at Aurora and its integrated production facility place that plant in a more desirable
position on our strategic profile than (BAR CHART)
 STRENGTHS:o
    Most diversified producer, making the entire range of
phosphate products  solid and liquid fertilizers, feed and industrialo
    High-quality rock makes it possible to upgrade economically to more stable, higher-margin productso
    Strong competitive cost position and tight global supply in purified acido
    Long-term deposits close to low-cost processing facilitieso
    Approximately 75 years of reserves in North Carolina at current operating rateso
    Existing mining permits at Aurora for seven years and covering estimated life of mine at White Springs (17 years)WEAKNESSES:o
    US producer dependency on declining world DAP trade has led to lower sales volumes and operating rateso
    High percentage of fixed costs means plants do not perform profitably at lower operating rateso
    Current high raw material input costs for ammonia and sulfuro
    Product diversity creates production requirements that increase costso
    Too much government intervention globally, either in constructing capacity or in restricting importso
    Offshore sales heavily exposed to China and India, which seek self-sufficiencyOPPORTUNITIES:o
    Our high-quality rock and proven technology allow us to expand production of the industrial product purified acido
    Production flexibility will allow us to streamline production at three operations to reduce costso
    Our strong competitive cost position in purified acid makes us less susceptible to offshore competitiono
    Resolution of DFP start-up problems should improve feed profitabilityo
    Potential for industry shutdownsTHREATS:o
    Excess world DAP capacity in many hands can easily be brought back on streamo
    Depressed fertilizer prices could encourage others to expand into the feed business, hurting marginso
    Competitors with liquidity issues are selling at lower prices to accelerate cash flowo
    Higher barriers to exit because environmental costs force some companies to continue production at uneconomic levels, impacting supply/demand fundamentals




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21 POTASHCORP 2004 ANNUAL REPORT  |  MD&A Phosphate BUSINESS   (ROCK COSTS LINE CHART) White Springs. One of Auroras upgraded products is purified acid, which has higher, more stable
margins and lessens the impact of the volatility of phosphate fertilizer. Industry demand for purified acid continues to grow globally in response to demand for products
that require it. Our position strengthened in 2004 when imports from China to the US were down 10
percent from 2003 and there was consolidation among US competitors. Barriers to entry  the need
for high-quality rock as well as capital considerations  keep this product in our most desirable
strategic positioning quadrant. We continue to expand the purified acid business at Aurora, where we have proven technology and a
strong, competitive cost position. Prices are favorable, and we will continue to look for
opportunities to further diversify in purified acid. Feed phosphates, our other diversification effort in phosphate, have suffered recently. Declining
demand due to increased use of substitutes, and the fallout from DAP as competitors switched their
phosphoric acid into feed, hurt supply/demand fundamentals. However, recent consolidation in the US
feed industry may improve its strategic positioning. CAPABILITY TO DELIVER Keys to profitability in phosphate include diversification away from fertilizer products, high
operating rates and minimizing the impact of high costs for inputs such as ammonia, sulfur and
rock. Therefore, we are reallocating P2O5 away from the more competitive fertilizers to
higher-margin products. In March 2003, we increased our
 purified acid capacity at Aurora to 251,000
tonnes P2O5, and that production capacity is sold out. We are now installing
an additional 82,000 tonnes of P2O5 capacity, to be complete in June 2006,
and all output is already in demand by various companies. Together, these expansions have allowed
us to divert 165,000 tonnes P2O5 away from fertilizer production. We have announced three projects that will allow us to run at higher operating rates, decreasing
costs without increasing solid fertilizer production tonnes: At Auroras DAP/acid facility, we will
debottleneck the #2 plant and close the less efficient #1 plant; also at Aurora, the gypsum blend
process will be streamlined to use more gypsum from direct blend filters; and, at White Springs, we
will convert production of all phosphoric acid to the superior hemihydrate process, which will
lower energy costs, increase production flexibility and produce a higher quality
P2O5. At approximately 30 percent of total production costs, rock is the largest controllable cost of
producing P2O5. Rock inventory was allowed to build in two previous years as
a safety cushion during the transition to another mining area at Aurora, and reduction of that
inventory last year increased rock costs by 10 percent. Constant inventory levels of wet phosphate
rock concentrate year over year and higher operating rates should reduce costs moving forward. The new design of the DFP plant brought on stream at Aurora in 2003 created complications, which
have prevented it from achieving full operating rates. We are working at resolving the problems
with the anticipation of operating it at design capacity in 2005. (OPERATING RATES LINE CHART)




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22 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Nitrogen BUSINESS  PotashCorp in the World Nitrogen Scene Nitrogen, the most widely produced nutrient, is a regional business. Ammonia, the feedstock for all
downstream nitrogen products, can be manufactured in any country with adequate natural gas
supplies, and approximately 60 countries do so. Ownership is widely dispersed around the globe, so
only 13 percent of ammonia is traded. Several developing countries with large gas reserves and low
production costs use little of their gas domestically, and monetize it by producing ammonia cheaply
for the export market. China is the largest producer, followed by India, Russia and the US. Half of
the industry is under government ownership so decisions are not necessarily based on economic
considerations. Rising natural gas costs in North America and Europe have led to plant closures, since gas is at
least 70 percent of the cost of producing ammonia. The resulting tight supply has increased prices,
attracting imports from areas of low-cost gas such as Trinidad, Venezuela, Russia and the Middle
East. Increasingly, the US is supplied from offshore. Since 1999, approximately 4.5 million tonnes
of US ammonia capacity has been permanently shut down, with a corresponding increase in imports of
55 percent. Nitrogen is an input in industrial production of a wide range of products that enhance modern
living. Manufacturers want consistent quality and just-in-time delivery to keep their plants
running efficiently. Many are attached to their suppliers by pipeline. (GAS PRICE VS. AMMONIA PRICE LINE CHART)
 GDP improvements in developing nations have historically supported growth in demand for these
lifestyle products. Within North America, sales are regionalized due to transportation costs. This limits competition
from Agrium and other Canadian sources which serve a different geographic market. CF Industries, a
cooperative, Koch, a private company, and Terra, a publicly traded company, are our main
competitors, along with imports. (LARGEST OFFSHORE AMMONIA CAPACITY BAR CHART) STRATEGY: Trinidad is key Our nitrogen strategy is designed to benefit from favorable gas contracts in Trinidad. In North
America, we employ natural gas hedges with the goal of minimizing risk from gas price swings and
protecting US margins. We believe our nitrogen position is spread along the bottom two quadrants of
our strategic positioning profile, with our Trinidad operations in
the superior right corner. In nitrogen, North America is our primary market. We supply it through a combination of tonnes
produced in Trinidad, US production and purchased tonnes which we re-sell, always seeking to source
the highest-margin method of supply. Our multiple port facilities, warehouse and distribution
network, dedicated sales and customer service teams and associated infrastructure make it possible
to supply customers from this flexible production base. Trinidad is home to more than 60 percent of our ammonia production. It has a stable government and
is ideally situated to service the sizeable US market. Thus we are expanding this lower-cost
facility.




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23 POTASHCORP 2004 ANNUAL REPORT  |  MD&A 
Nitrogen BUSINESS  STRENGTHS:o
    Long-term, lower-cost gas contracts in Trinidado
    Our gas hedging program in the US helps stabilize costs thereo
    Serve both fertilizer and industrial customerso
    Some of our US plants are linked by pipeline to industrial customers willing to pay a premium for secure, high-quality supplyo
    We own/operate deepwater import terminalsWEAKNESSES:o
    US plants depend on high-cost natural gaso
    Plant ownership spread over many companieso
    Contractual commitments to industrial customers may force us to operate unprofitably in a high-cost gas environmento
    Small volume changes can significantly impact pricesOPPORTUNITIES:o
    High volume demand in the USo
    Plants in Trinidad being expanded to provide more cost-advantageous productiono
    Our US distribution system allows us to import and sell purchased tonneso
    Consolidation of US industryo
    High cost of construction materials such as steel could delay new capacity, extending the current cycleTHREATS:o
    Abundance of lower-cost natural gas in developing countries leads to new ammonia capacity as they attempt to monetize their gas resourceso
    Competitors need only a short lead time to bring on new capacity when the supply/demand ratio is tight
 Our US plants, located in different regions, focus on industrial sales in which quality and
security of supply are key. With varied production rates at these operations, we plan to maximize
sales to industrial customers, supplemented by fertilizer sales, to run our plants at the highest
possible operating rate to help control costs. We currently operate three plants in the US: Augusta and Lima, producing a range of nitrogen
products, and Geismar, the worlds largest nitric acid producer. Augusta is a highly competitive,
economical plant with a strong industrial customer base. Lima is also a strong industrial supplier
with a good inland location that is insulated from imports. We curtailed all production at Memphis
and ammonia and nitrogen solutions production at Geismar in June 2003. Our strategy moving forward also considers leveraging our marketing and operations expertise
without significant capital
 (BAR CHART) outlay through asset-light/fee-heavy arrangements. Our goal is to find
investments where we provide the operating, management and marketing knowledge along with
distribution resources, while our partner provides the assets. This has the potential to deliver
stable returns for minimum investment. CAPABILITY TO DELIVER We have announced four debottlenecking expansions in Trinidad to capitalize on our lower-cost gas
position there. The first two expansions are for approximately 138,000 tonnes of ammonia for $30
million; 69,000 tonnes will be available in the first quarter of 2005 and the rest in the third
quarter. Subsequent expansions will increase capacity by a further 132,000 tonnes for $41 million. Half is expected to
be available in the first quarter of 2006 and the remainder in the third quarter. US natural gas is
expected to remain above $4.50 per MMBtu, which sets the floor price for US ammonia above $195 per
tonne. Ammonia prices would have to fall below $140 per tonne before these expansions would provide
a return of less than 15 percent. In the US, we continue to utilize our gas hedging program to mitigate the risk of price volatility.
Natural gas prices will determine the profitability of our hedging program and our ability to buy
more cheaply, on average, than the market going forward. By using our distribution system for
purchased tonnes, we can source product with the best margins.




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##### 



24 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Sales BUSINESS PotashCorp Sales  STRATEGY: Be the supplier of choice In our business, where products are similar and price is the most important influence on buying
decisions, our goal is to move our customer base to the top right strategic position of highest
volumes and highest margins. We want to be the supplier of choice to our customers, always getting
the final opportunity to win their business. We seek to become the preferred supplier to
high-volume, high-margin customers with the lowest credit risk. CAPABILITY TO DELIVER Customers perceptions of our ability to create value for them based on the price they pay for our
products are fundamental to our ability to maintain and grow their business. Our dedicated sales
teams for each product (fertilizer, feed and industrial) focus on increasing their specific
knowledge to provide maximum value for customers. We follow up our sales with customer service that
is available 24/7, and have strong technical support. We also do annual customer surveys. In our
most recent survey, price was listed as the top purchasing criterion. However, beyond price,
customers named product quality as the single most important factor influencing their buying
decisions. The same research indicates that PotashCorp is rated by survey respondents from each
customer group as having the highest product quality. In addition, at least three-quarters of those
surveyed indicated that sustainability performance affected buying decisions, especially as it
related to economic and safety, health and environmental performance. Recognizing its importance,
PotashCorp focuses on this in customer communications and sets targets for improvement in these
areas. In North America, continued engagement with our customers, along with strategic alliances with
dealers who warehouse our products, will influence our success in maintaining fertilizer market
share. For feed, the proximity of our plants to customers is an advantage, as are our long-term
relationships with purified acid customers. Additionally, our extensive North American distribution
network gives us a logistical advantage in supplying the growing needs of all customers. Our participation in the fertilizer sales organizations Canpotex and PhosChem, where we share
marketing costs and volumes with other producers, is important to our offshore margins. These
organizations maintain a network of agents in offshore markets, aimed at ensuring our products
benefit from market growth. As a producer of large volumes which are sold around the world, our success requires an efficient
transportation system. This is achieved by operating our own transportation department, with a
distribution
 network of approximately 175 terminal and warehouse facilities and a fleet of
approximately 6,600 railcars. Rising sales of North American grain and other commodities have affected the availability of
railcars for potash. CN Rail handles our North American rail shipments. In response to the growing
demand and potential increase in rates, we signed a long-term agreement with CN through 2010, which
will deliver annual savings. CN has committed to meeting our North American growth and has
therefore added 60 locomotives and 500 covered hopper cars. Rail from Saskatchewan to west coast ports is handled by CP Rail, Canpotexs primary carrier. CP
has committed to meet Canpotexs offshore growth by investing approximately $1 billion in
improvements that will include 24 more locomotives and 600 more covered hopper cars, for a total of
1,500. Canpotexs private hopper car fleet will increase from 1,960 cars to 3,260 by mid-2005 to
meet the growing demand. The relationship between costs and return on our investment in the system is key. Recent increases
in ocean freight rates are raising our cost to deliver to offshore customers that purchase potash
on contracts with freight included. In response to the volatile and rising ocean freight rates,
Canpotex plans to increase its fixed freight agreements from 15 percent in 2003 to a target of over
50 percent in 2005. For our sales out of New Brunswick, we negotiated a three-year freight contract for 60 percent of sales from there to
Brazil. (CUSTOMER SURVEYS GRAPHS)




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25 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Key Performance Drivers BUSINESS  Key Performance Drivers  Each year we set targets to advance our goals and drive results. In 2004 we further developed key
performance indicators to monitor our progress and measure success. As we drill down the
organization with these metrics, we believe:  
    management will focus on the most important things, which will be reinforced by having the
relevant results readily accessible;
    employees will understand and be able to effectively monitor their contribution to the
achievement of corporate goals; and
    we will be even more effective in meeting our targets. Recognizing that this is an evolving process, we began by examining the companys long-term goals
and developing metrics to measure progress. We achieve our goal of outperforming comparable companies by maximizing shareholder wealth through
increasing sales of our products with more stable and higher margins. At the corporate level, the
key performance metric for maximizing shareholder wealth is total shareholder return, on both an
annual basis and a sustaining basis. Supporting metrics which contribute to this are cash flow
return versus our weighted average cost of capital, EBITDA multiple relative to our peers, and
sales and gross margin growth. In our sales and production divisions, the metrics are cash flow return at the divisional gross
margin level and associated working capital. We measure our success at increasing sales of products
with stable, desirable margins by analyzing volumes, revenue and gross margin for all sales within
each nutrient. The question we ask ourselves is, Have we optimized our gross margin on a product
and customer mix basis? The metrics for achieving our goal of being the preferred supplier are the number of complaints we
receive and order fill rate categories. We also do annual customer surveys to measure our
effectiveness at every stage of the sales transaction and how we compare with our competitors. Our
goal is to outperform and be in the top quartile. We are establishing monthly surveys to monitor
customer attitudes about our quality and service. We recognize that being a low-cost supplier is essential to sustaining profitability. We achieve
this goal by reducing cash costs and spending appropriate sustaining capital to maintain low costs
and productivity. The metrics for success at the corporate level are total cost per tonne of each
nutrient or primary product and supporting selling and administrative expense. In sales, we measure
percentage of customer shipments by preferred carrier and route, associated transportation and
distribution expense, freight cost, sales expense and number of tonnes per sales representative.
For all nutrients, performance reliability relative to maintenance cost is measured.
 Reducing injury rates and environmental impact will help us achieve our goal of no harm to people,
no accidents and no damage to the environment. Lost-time and recordable injury rates and
environmental events such as reportable releases and permit excursions measure the components of
this goal. To reach our goal of having motivated, productive employees, we encourage and reward performance
that supports PotashCorps strategy. We have initiated a process to survey employee engagement with
the companys goals and objectives. Over time we will be able to compare year-over-year results to
provide a guideline for activities we might introduce or improve to increase employee productivity
and emotional buy-in to our objectives. We achieve our goal of having a positive impact on communities in which we operate by contributing
to socio-economic well-being. Part of this is having good governance principles, and our board
continues to assess this area. We contribute to our communities by being a competitive employer on a
compensation and benefit basis, and we support local causes in areas where we operate. We measure
our success by reviewing tone of media coverage, number of events the company sponsors and total
charitable donations and volunteer hours. We also do community surveys and aim for top-quartile
performance. (LEAD FERTILIZER INDUSTRY CHART)




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##### 



26POTASHCORP 2004 ANNUAL
REPORT  |  MD&A  Factors That Shaped 2004 Business Conditions2004 RESULTSFactors That Shaped 2004 Business Conditions  1
    Economic Growth Strong, China and India LeadThe global economy grew in 2004 by an estimated 5 percent, spurred by booms in two countries with
the largest populations, China  almost one-third of total
global economic growth with 9 percent 
and India, 6 percent. Despite some difficulty, the US economy averaged over 4 percent growth. The
strong GDP growth gave world farmers a solid basis for boosting their fertilizer application rates,
and consumption of all three nutrients was above trend.(GROWTH BAR CHART)2
    Ideal Growing Conditions Produced Record CropWith highly favorable weather in most of the important crop-producing countries, world grain
production reached an all-time high in 2004. The ideal growing conditions allowed global production
to exceed consumption for the first time in six years, though the surplus was only 2.8 percent more
than the escalating consumption. The stocks-to-use ratio for crop year 2004/05 is still expected to
be the second lowest in 30 years, at 19.4 percent.3
    Record Income for US FarmersUS farmers, buoyed by favorable pricing opportunities in the spring of 2004 and excellent planting
weather, enjoyed record net cash farm income totalling $77.5 billion, including farm program
payments. These conditions, following record income in 2003, resulted in corn plantings being
increased by 2.5 million acres. Corn requires more fertilizer than any other crop, which boosted US
fertilizer consumption.
 4
    Ocean Freight Rates Remained HighDemand by Asias growing economies for industrial and agricultural commodities continued to support
elevated ocean freight rates in 2004. Chinas construction and infrastructure boom relies heavily
on ocean transport, and when its government tapped the brakes on its overheating economy by
tightening credit at mid-year, the Baltic Panamax Ocean Freight Index dipped. It rose again when
China decided no further tightening was necessary, and freight rates reached record levels in
December.(LINE CHART)5
    Foreign Currencies Appreciate as US Dollar StrugglesThe US dollar fell significantly in 2004, influenced in part by the countrys large negative trade
balance, with the value of imports almost twice its annual exports. The currencies of several
countries continued to strengthen against the dollar, giving them increased buying power. In the
last two years, when Brazils real appreciated about 25 percent, it increased its potash and
phosphate purchases significantly.(APPRECIATION BAR CHART)




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##### 



27POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Factors That Shaped 2004 Business Conditions2004 RESULTS  Potash
    
    
    Phosphate
    
    
    Nitrogen2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Total WorldDemand10
    
    
    49.9
    
    
    
    45.4
    
    
    
    59.8
    
    
    
    56.6
    
    
    
    137.6
    
    
    
    133.8(product
tonnes millions)PotashCorpShare of

    
    16%
    
    
    
    16%
    
    
    
    6%
    
    
    
    6%
    
    
    
    2%
    
    
    
    2%WorldProduction11
  6
    High US Natural Gas Prices Affect Ammonia Production, ImportsNatural gas prices on NYMEX remained high throughout the year, with the closing monthly price
averaging $6.14 per MMBtu, 75 cents higher than in 2003. In spite of the tight supply/demand
situation in 2004, US ammonia producers operated at only 75 percent of capacity. Imports held on to
the position they had gained in the US market in the last few years, with the bulk coming from
Trinidad.7
    Ammonia and Urea Prices HigherBolstered by increased global nitrogen consumption of 4.3 percent, the international ammonia price
was substantially stronger in 2004. Urea also benefited from tight supply/demand fundamentals,
which included production disruptions. Average prices were up, and peaked at their highest level
since 1996, underpinned by high US natural gas costs.8
    US DAP Exports DeclineWorld consumption of DAP grew by 8.6 percent in 2004 but the steady decline in US DAP exports
continued, falling by 0.5 million tonnes. Increased demand from Latin America, Africa and Turkey
did not offset lower imports by China and India, where production was increased by 1.3 million and
0.8 million tonnes, respectively, resulting in lower world DAP trade.(CONSUMPTION AND TRADE GRAPH)
 9
    Record Demand for PotashPotash demand grew 9.9 percent in 2004, absorbing world production and depleting inventories.
Global sales totalled 49.9 million tonnes, a new record. Asia and Latin America were in the
forefront of demand, with China importing a record 7.2 million tonnes and Brazil 6.4 million
tonnes. India, Indonesia, Malaysia, Vietnam and Thailand all had record imports, and Canpotex set a
new sales record of almost 8 million tonnes.(POTASH DEMAND GRAPH)10
    Potash Production Jumps, Prices FollowIn response to this unprecedented demand, world potash production also jumped by over 9 percent,
with all producers except PotashCorp operating at or near capacity. Nonetheless, sales exceeded
production for the second straight year. Prices January 1, 2004 to January 1, 2005 rose 40 to 60
percent in major offshore markets and by approximately 40 percent in the North American market,
where further increases announced for 2005 should bring the total increase to over 60 percent.(PRICE INCREASE GRAPH)




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28 POTASHCORP 2004 ANNUAL REPORT  |MD&A  2004 Financial Overview 2004 RESULTS 2004 Financial Overview   Dollars (millions)
    
    
    
    % Increase (Decrease)2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003Sales
    
    $
    3,244.4
    
    
    $
    2,799.0
    
    
    $
    2,224.4
    
    
    
    16
    
    
    
    26Gross Margin
    
    $
    681.4
    
    
    $
    380.4
    
    
    $
    307.3
    
    
    
    79
    
    
    
    24Operating Income (Loss)
    
    $
    514.3
    
    
    $
    (55.6
    )
    
    $
    166.9
    
    
    
    n/m
    
    
    
    (133
    )Net Income (Loss)
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6
    
    
    
    n/m
    
    
    
    (336
    )Net Income (Loss) Per Share  Diluted
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51
    
    
    
    n/m
    
    
    
    (337
    )n/m = not meaningful
  2004 Earnings Compared to Guidance
 The companys initial estimate for 2004 EPS was approximately $1.55 per share. The final result was
$2.70 per share. The primary causes of this variance from guidance were: EffectCause
    
    on EPSPotash offshore realized prices higher
    
    
    0.49Potash domestic realized prices increased
    
    
    0.26Potash sales volumes higher
    
    
    0.22Decreased potash costs partially offsetby lower nitrate margin
    
    
    0.03Higher provincial mining taxes
    
    
    (0.27
    )Subtotal potash
    
    
    0.73Phosphate realized prices higher
    
    
    0.24Increased input costs for ammonia and sulfur
    
    
    (0.10
    )Start-up problems with DFP expansion at Aurora
    
    
    (0.05
    )Subtotal phosphate
    
    
    0.09Increased nitrogen realized prices (exclusive of purchased product)
    
    
    0.69Cost of natural gas higher
    
    
    (0.38
    )Nitrogen costs higher (exclusive of cost of natural gas) combined with lower manufactured volumes
    
    
    (0.29
    )Gain on natural gas hedges and purchased product margin
    
    
    0.10Subtotal nitrogen
    
    
    0.12Foreign exchange variance
    
    
    (0.05
    )Increase in selling and administrative
    
    
    (0.13
    )Increase in
other income (excluding gain on sale of SQM shares) and decrease in interest expense
    
    
    0.11Subtotal of the above
    
    
    0.87Provision for PCS Yumbes
    
    
    (0.03
    )Gain from the sale of SQM shares
    
    
    0.31Total variance from EPS guidance
    
    
    1.15
 2004 Earnings Compared to 2003
 The companys EPS for 2003 was a loss of $1.21 per share. The final EPS for 2004 was $2.70 per
share. The primary causes of this increase from last years actuals were: EffectCause
    
    on EPSPotash offshore realized prices higher
    
    
    0.85Potash domestic realized prices increased
    
    
    0.62Potash sales volumes higher
    
    
    0.25Increased potash costs due to foreign exchange
and other, partially offset by higher nitrate margin
    
    
    (0.33
    )Higher provincial mining taxes
    
    
    (0.24
    )Subtotal potash
    
    
    1.15Phosphate realized prices higher
    
    
    0.65Increased input costs for ammonia and sulfur
    
    
    (0.25
    )Phosphate sales volumes higher
    
    
    (0.21
    )Subtotal phosphate
    
    
    0.19Increased nitrogen realized prices (exclusive of purchased product)
    
    
    1.25Cost of natural gas higher
    
    
    (0.62
    )Nitrogen costs higher (exclusive of cost of natural gas)
    
    
    (0.08
    )Nitrogen volumes lower (exclusive of purchased product)
    
    
    0.09Smaller gain on natural gas hedges and purchased product margin
    
    
    (0.27
    )Subtotal nitrogen
    
    
    0.37Foreign exchange variance
    
    
    0.18Increase in selling and administrative
    
    
    (0.24
    )Increase in
other income (excluding gain on sale of SQM shares) and decrease in interest expense
    
    
    0.10Subtotal of the above
    
    
    1.75Future income tax reversal from 2003
    
    
    (0.06
    )Provision for PCS Yumbes and plant shutdowns
    
    
    1.91Gain from the sale of SQM shares
    
    
    0.31Total variance from 2003 EPS
    
    
    3.91




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##### 



29 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Business Segment Review / Potash Results 2004 RESULTS Business Segment Review  Potash Results % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    
    
    
    (Decrease)
    
    
    
    
    Tonnes (thousands)
    
    
    
    
    (Decrease)
    
    
    
    
    Average Price per Tonne
    
    
    
    
    (Decrease)2004
    
    
    
    2003
    
    
    
    2002
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    
    
    2004
    
    
    
    2003Sales
    
    $
    1,056.1
    
    
    $
    758.7
    
    
    $
    669.0
    
    
    
    
    39
    
    
    
    13Freight
    
    
    128.7
    
    
    
    109.9
    
    
    
    99.9
    
    
    
    
    17
    
    
    
    10Transportation
and distribution
    
    
    32.6
    
    
    
    29.7
    
    
    
    24.6
    
    
    
    
    10
    
    
    
    21$
    894.8
    
    
    $
    619.1
    
    
    $
    544.5
    
    
    
    
    45
    
    
    
    14Net salesNorth American
    
    $
    347.5
    
    
    $
    230.6
    
    
    $
    215.3
    
    
    
    
    51
    
    
    
    7
    
    
    
    
    3,246
    
    
    
    2,870
    
    
    
    2,780
    
    
    
    
    13
    
    
    
    3
    
    
    
    $
    107.06
    
    
    $
    80.33
    
    
    $
    77.45
    
    
    
    
    33
    
    
    
    4Offshore
    
    
    504.6
    
    
    
    336.2
    
    
    
    300.7
    
    
    
    
    50
    
    
    
    12
    
    
    
    
    5,030
    
    
    
    4,213
    
    
    
    3,547
    
    
    
    
    19
    
    
    
    19
    
    
    
    $
    100.33
    
    
    $
    79.80
    
    
    $
    84.76
    
    
    
    
    26
    
    
    
    (6
    )852.1
    
    
    
    566.8
    
    
    
    516.0
    
    
    
    
    50
    
    
    
    10
    
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    
    17
    
    
    
    12
    
    
    
    $
    102.97
    
    
    $
    80.01
    
    
    $
    81.55
    
    
    
    
    29
    
    
    
    (2
    )Miscellaneous
    
    
    42.7
    
    
    
    52.3
    
    
    
    28.5
    
    
    
    
    (18
    )
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    894.8
    
    
    
    619.1
    
    
    
    544.5
    
    
    
    
    45
    
    
    
    14
    
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    
    17
    
    
    
    12
    
    
    
    $
    108.12
    
    
    $
    87.41
    
    
    $
    86.06
    
    
    
    
    24
    
    
    
    2Cost of goods sold
    
    
    472.0
    
    
    
    415.4
    
    
    
    326.5
    
    
    
    
    14
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    57.03
    
    
    $
    58.65
    
    
    $
    51.60
    
    
    
    
    (3
    )
    
    
    14Gross Margin
    
    $
    422.8
    
    
    $
    203.7
    
    
    $
    218.0
    
    
    
    
    108
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    51.09
    
    
    $
    28.76
    
    
    $
    34.46
    
    
    
    
    78
    
    
    
    (17
    )Note 18 to the consolidated financial statements provides information pertaining to our business segments.
  2004 VS 2003 Total potash sales increased by $297.4 million from 2003 and net sales by $275.7 million, driven by
higher average realized prices and record volumes. This led potash to provide $422.8 million (62
percent) of our total gross margin for the year and increase its gross margin percentage from 33
percent of net sales in 2003 to 47 percent. Canpotex sold a record 7.8 million tonnes for the year and our Saskatchewan-sourced offshore
volumes rose 28 percent, favorably impacting net sales by $72.6 million. Brazil remained our
largest customer with 23 percent of volumes. China was second with 20 percent. Indonesia, Oceania,
China, India, Malaysia and Korea all had double-digit growth, leading to a 19-percent rise in
offshore volumes. Offshore prices climbed 26 percent despite a 46-percent rise in Canpotexs ocean freight costs. As
new contracts were negotiated with many customers, tight market conditions enabled us to more than
cover the increases in ocean freight rates. Year over year, our gains in offshore prices on
Saskatchewan-sourced tonnes favorably impacted net sales by $88.6 million, despite China being
supplied with potash under a contract negotiated last year at old prices. Average price increases
realized on the sale of our New Brunswick product contributed $29.3 million to the increase in
offshore net sales.
 In the North American market, our average realized prices climbed 33 percent. Over the course of
2004, we announced increases that amounted to $66 per tonne, with the most recent of these to be
implemented by the end of the second quarter of 2005. North American volumes rose overall by 13
percent. With competitors operating near capacity, we were able to increase market share as the
year progressed. (POTASH PRICES LINE CHART)




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##### 



30 POTASHCORP 2004 ANNUAL REPORT  |MD&A  Potash Results / Phosphate Results 2004 RESULTS  POTASH PRODUCTION (million tonnes KCl) Production
    
    
    
    
    
    Mine SiteCapacity
    
    2004
    
    2003
    
    2002
    
    
    Employees(active)Lanigan SK
    
    
    3.828
    
    
    
    2.025
    
    
    
    1.488
    
    
    
    1.424
    
    
    
    364Rocanville SK1
    
    
    2.695
    
    
    
    1.833
    
    
    
    1.989
    
    
    
    1.700
    
    
    
    328Allan SK
    
    
    1.885
    
    
    
    1.344
    
    
    
    .934
    
    
    
    .864
    
    
    
    285Cory SK
    
    
    1.361
    
    
    
    .738
    
    
    
    .730
    
    
    
    .677
    
    
    
    196Patience Lake SK
    
    
    1.033
    
    
    
    .239
    
    
    
    .251
    
    
    
    .230
    
    
    
    67Esterhazy SK2
    
    
    .953
    
    
    
    .953
    
    
    
    .953
    
    
    
    .953
    
    
    
    0New Brunswick NB
    
    
    .785
    
    
    
    .782
    
    
    
    .749
    
    
    
    .599
    
    
    
    330TOTAL1
    
    
    12.540
    
    
    
    7.914
    
    
    
    7.094
    
    
    
    6.447
    
    
    
    1,570
 1
    A 400,000-tonne expansion at Rocanville came on stream in first-quarter 2005, raising
total capacity from 12.140 million tonnes to 12.540 million tonnes.2
    PotashCorps mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited
Partnership under a long-term agreement. For calendar year 2005, our production allocation is 0.953
million tonnes.
  PotashCorp continued to increase production to meet growing demand, adding shifts at Lanigan and
Allan in 2004 and producing a record 7.9 million tonnes. The growth in volumes allowed us to lower
our Canadian dollar cost of goods sold per tonne by 5 percent, and capitalize on economies of
scale. This was partially offset by a stronger Canadian dollar, resulting in our cost of goods sold
decreasing by $1.62 per tonne from 2003. 2003 VS 2002 Sales volumes from our potash segment rose 12 percent in 2003, led by offshore sales that were 19
percent above 2002. Brazil bought 36 percent more from us than in 2002, making it our largest
customer for the second straight year and a key market. Sales to India, Indonesia, Vietnam and
Malaysia were up significantly; China sales were flat.
 Lower realized offshore prices reflected the year-long escalation in freight rates. A tight
supply/demand balance in North America raised sales volumes by 3 percent and prices by 4 percent. Higher volumes and increased North American prices did not offset higher unit cost of sales, which
was pushed up by the stronger Canadian dollar. Otherwise, unit cost of sales would have been lower
than in 2002, even with higher natural gas costs, because volumes were up significantly. The gross margin dropped from 2002 in our potash segment despite record sales, due to escalating
offshore freight rates and higher unit cost of sales. The increase in costs was due primarily to
the strengthening Canadian dollar, which raised costs by approximately $4.50 per tonne over 2002.
These increased costs were partially offset by higher operating rates.
   Phosphate Results  % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    
    
    (Decrease)
    
    
    
    Tonnes (thousands)
    
    
    
    (Decrease)
    
    
    
    Average Price per Tonne
    
    
    
    (Decrease)2004
    
    
    
    2003
    
    
    
    2002
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    
    
    2004
    
    
    
    2003Sales
    
    $
    977.9
    
    
    $
    883.9
    
    
    $
    714.0
    
    
    
    
    11
    
    
    
    24Freight
    
    
    71.9
    
    
    
    75.8
    
    
    
    58.8
    
    
    
    
    (5
    )
    
    
    29Transportation
and distribution
    
    
    29.4
    
    
    
    26.2
    
    
    
    18.4
    
    
    
    
    12
    
    
    
    42$
    876.6
    
    
    $
    781.9
    
    
    $
    636.8
    
    
    
    
    12
    
    
    
    23Net salesFertilizer  liquids
    
    $
    147.3
    
    
    $
    167.7
    
    
    $
    144.9
    
    
    
    
    (12
    )
    
    
    16
    
    
    
    
    704
    
    
    
    751
    
    
    
    675
    
    
    
    
    (6
    )
    
    
    11
    
    
    
    $
    209.17
    
    
    $
    223.17
    
    
    $
    214.55
    
    
    
    
    (6
    )
    
    
    4Fertilizer  solids
    
    
    324.7
    
    
    
    249.2
    
    
    
    113.4
    
    
    
    
    30
    
    
    
    120
    
    
    
    
    1,590
    
    
    
    1,494
    
    
    
    745
    
    
    
    
    6
    
    
    
    101
    
    
    
    $
    204.16
    
    
    $
    166.78
    
    
    $
    152.26
    
    
    
    
    22
    
    
    
    10Feed
    
    
    190.6
    
    
    
    182.6
    
    
    
    216.8
    
    
    
    
    4
    
    
    
    (16
    )
    
    
    
    888
    
    
    
    861
    
    
    
    961
    
    
    
    
    3
    
    
    
    (10
    )
    
    
    $
    214.78
    
    
    $
    212.25
    
    
    $
    225.55
    
    
    
    
    1
    
    
    
    (6
    )Industrial
    
    
    204.1
    
    
    
    174.5
    
    
    
    155.1
    
    
    
    
    17
    
    
    
    13
    
    
    
    
    611
    
    
    
    541
    
    
    
    482
    
    
    
    
    13
    
    
    
    12
    
    
    
    $
    334.09
    
    
    $
    322.72
    
    
    $
    321.93
    
    
    
    
    4
    
    
    
    866.7
    
    
    
    774.0
    
    
    
    630.2
    
    
    
    
    12
    
    
    
    23
    
    
    
    
    3,793
    
    
    
    3,647
    
    
    
    2,863
    
    
    
    
    4
    
    
    
    27
    
    
    
    $
    228.50
    
    
    $
    212.23
    
    
    $
    220.12
    
    
    
    
    8
    
    
    
    (4
    )Miscellaneous
    
    
    9.9
    
    
    
    7.9
    
    
    
    6.6
    
    
    
    
    25
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    876.6
    
    
    $
    781.9
    
    
    $
    636.8
    
    
    
    
    12
    
    
    
    23
    
    
    
    
    3,793
    
    
    
    3,647
    
    
    
    2,863
    
    
    
    
    4
    
    
    
    27
    
    
    
    $
    231.11
    
    
    $
    214.40
    
    
    $
    222.43
    
    
    
    
    8
    
    
    
    (4
    )North American
    
    $
    690.3
    
    
    $
    654.8
    
    
    $
    542.5
    
    
    
    
    5
    
    
    
    21
    
    
    
    
    2,797
    
    
    
    2,886
    
    
    
    2,310
    
    
    
    
    (3
    )
    
    
    25
    
    
    
    $
    246.84
    
    
    $
    226.91
    
    
    $
    234.88
    
    
    
    
    9
    
    
    
    (3
    )Offshore
    
    
    186.3
    
    
    
    127.1
    
    
    
    94.3
    
    
    
    
    47
    
    
    
    35
    
    
    
    
    996
    
    
    
    761
    
    
    
    553
    
    
    
    
    31
    
    
    
    38
    
    
    
    $
    186.99
    
    
    $
    167.04
    
    
    $
    170.37
    
    
    
    
    12
    
    
    
    (2
    )876.6
    
    
    
    781.9
    
    
    
    636.8
    
    
    
    
    12
    
    
    
    23
    
    
    
    
    3,793
    
    
    
    3,647
    
    
    
    2,863
    
    
    
    
    4
    
    
    
    27
    
    
    
    $
    231.11
    
    
    $
    214.40
    
    
    $
    222.43
    
    
    
    
    8
    
    
    
    (4
    )Cost of goods sold
    
    
    860.8
    
    
    
    798.4
    
    
    
    594.9
    
    
    
    
    8
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    226.94
    
    
    $
    218.92
    
    
    $
    207.79
    
    
    
    
    4
    
    
    
    5Gross Margin
    
    $
    15.8
    
    
    $
    (16.5
    )
    
    $
    41.9
    
    
    
    
    n/m
    
    
    
    (139
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.17
    
    
    $
    (4.52
    )
    
    $
    14.64
    
    
    
    
    n/m
    
    
    
    (131
    )Note 18 to the consolidated financial statements provides information pertaining to our business segments.
    
    
    
    
    
    
    
    
    
    
    n/m = not meaningful




---



##### 



31 POTASHCORP 2004 ANNUAL REPORT  
|   MD&A 
Phosphate Results 2004 RESULTS  2004 VS 2003 Our total phosphate gross margin improved to $15.8 million in 2004 from a loss of $16.5 million in
2003. Total phosphate sales increased by $94.0 million and net sales by $94.7 million, with
freight, transportation and distribution costs remaining flat, in aggregate, compared to 2003. Solid fertilizer net sales increased by $75.5 million over 2003, driven by 16 percent higher
offshore volumes. Volumes were lower in 2003 as they were impacted by the shutdown of DAP capacity
at the White Springs Suwannee River plant. Prices for DAP and MAP were higher due to hurricanes
during the third quarter that decreased North American inventory and tightened supply. The higher
prices had a positive impact on net sales of $55.0 million. Net sales of liquid fertilizers declined by $20.4 million from last year. Sales volumes dropped 6
percent, largely due to a 23-percent decline in North American tonnages, as PotashCorp chose to
sell less there when strong competition kept prices under pressure. The overall decline in sales
volumes negatively impacted net sales by $23.6 million. Prices for liquid fertilizers were also
below 2003 levels, primarily as a result of product mix. Net sales of feed improved by $8.0 million as we benefited from higher DFP prices and extra volumes
due to a plant closure by a competitor. Industrial net sales rose by $29.6 million compared with
2003. Volumes increased by 13 percent, favorably impacting net sales by $28.7 million. The volume
increase was largely a result of lower imports from China, and more product being available from
our purified acid plant expansion at Aurora.
 While overall phosphate prices and volumes increased, product costs continued to be a challenge.
Cost of goods sold increased by $8 per tonne. Average sulfur and ammonia input costs per tonne rose
4 percent and 31 percent, respectively, increasing cost of goods sold by a total of $29.4 million.
In addition to these higher input costs, continuing start-up problems with our DFP plant at Aurora
impacted cost of goods sold by approximately $9.0 million. 2003 VS 2002 Higher fertilizer prices and increased sales volumes of liquid and solid fertilizers and industrial
products in 2003 were more than offset by rising input costs, resulting in negative gross margin in
our phosphate segment. (PHOSPHATE PRICES LINE CHART)
    ROCK AND ACID PRODUCTION Phosphate
Rock (million tonnes)
    
    
    Phosphoric Acid (million tonnes P2O5)Annual
    
    
    Production
    
    
    Annual
    
    
    Production
    
    
    EmployeesCapacity
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    Capacity
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    (active)Aurora NC
    
    
    6.0
    
    
    
    3.964
    
    
    
    3.078
    
    
    
    3.444
    
    
    
    1.202
    
    
    
    1.018
    
    
    
    .919
    
    
    
    .852
    
    
    
    1,015White Springs FL
    
    
    3.6
    
    
    
    2.745
    
    
    
    2.686
    
    
    
    1.547
    
    
    
    1.093
    
    
    
    .773
    
    
    
    .777
    
    
    
    .480
    
    
    
    898Geismar LA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .202
    
    
    
    .171
    
    
    
    .165
    
    
    
    .180
    
    
    
    77TOTAL
    
    
    9.6
    
    
    
    6.709
    
    
    
    5.764
    
    
    
    4.991
    
    
    
    2.497
    
    
    
    1.962
    
    
    
    1.861
    
    
    
    1.512
    
    
    
    1,990
 PHOSPHATE PRODUCTION (million tonnes product) Aurora
    
    
    White Springs
    
    
    GeismarAnnual
    
    
    
    
    
    
    Production
    
    
    Annual
    
    
    
    
    
    Production
    
    
    Annual
    
    
    
    
    
    ProductionCapacity
    
    
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    Capacity
    
    
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002
    
    
    Capacity
    
    
    
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002Liquids:  MGA1
    
    
    1.835
    
    
    
    
    
    
    
    1.687
    
    
    
    1.522
    
    
    
    1.336
    
    
    
    1.908
    
    
    
    
    
    
    
    1.004
    
    
    
    .966
    
    
    
    .828
    
    
    
    .337
    
    
    
    
    
    
    
    .282
    
    
    
    .272
    
    
    
    .324SPA
    
    
    .676
    
    
    
    
    
    
    
    .224
    
    
    
    .285
    
    
    
    .200
    
    
    
    1.138
    
    
    
    
    
    
    
    .569
    
    
    
    .748
    
    
    
    .639
    
    
    
    .196
    
    
    
    
    
    
    
    .086
    
    
    
    .091
    
    
    
    .117Solids (total)
    
    
    1.247
    
    
    DAP
    
    
    .472
    
    
    
    .377
    
    
    
    .495
    
    
    
    .710
    
    
    DAP
    
    
    .575
    
    
    
    .625
    
    
    
    .028
    
    
    
    
    
    
    DAP
    
    
    
    
    
    
    
    
    
    
    MAP
    
    
    .525
    
    
    
    .469
    
    
    
    .255
    
    
    
    
    
    
    MAP
    
    
    .091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MAP
    
    
    
    
    
    
    
    
    
    
    
 1
    A substantial portion is consumed internally in the production of downstream
products. The balance is exported to phosphate fertilizer producers and sold domestically to
dealers who custom-mix liquid fertilizer.




---



##### 



32 POTASHCORP 2004 ANNUAL REPORT  |MD&A

Phosphate Results / Nitrogen Results 2004 RESULTS  PURIFIED ACID
PRODUCTION (million tonnes P2O5)Annual
    
    ProductionCapacity
    
    2004
    
    2003
    
    2002Aurora NC
    
    
    .251
    
    
    
    .246
    
    
    
    .204
    
    
    
    .165
 Purified acid is a feedstock for production of downstream industrial products such as metal
brighteners, cola drinks and pharmaceuticals.
 PHOSPHATE FEED PRODUCTION (million tonnes) Annual
    
    
    
    
    
    Production
    
    
    
    
    
    EmployeesCapacity
    
    2004
    
    2003
    
    2002
    
    (active)Marseilles IL
    
    
    .278
    
    
    
    .138
    
    
    
    .151
    
    
    
    .177
    
    
    
    33White Springs FL (monocal)
    
    
    .272
    
    
    
    .126
    
    
    
    .060
    
    
    
    .137
    
    
    
    26Weeping Water NE
    
    
    .209
    
    
    
    .122
    
    
    
    .147
    
    
    
    .166
    
    
    
    43Joplin MO1
    
    
    .163
    
    
    
    .087
    
    
    
    .088
    
    
    
    .104
    
    
    
    33Aurora NC (DFP)
    
    
    .159
    
    
    
    .079
    
    
    
    .050
    
    
    
    .004
    
    
    
    30Kinston NC2
    
    
    
    
    
    
    
    
    
    
    .008
    
    
    
    .054
    
    
    
    0White Springs FL (DFP)
    
    
    .100
    
    
    
    .086
    
    
    
    .059
    
    
    
    .096
    
    
    
    34Fosfatos do Brasil
    
    
    .110
    
    
    
    .075
    
    
    
    .051
    
    
    
    .047
    
    
    
    79TOTAL
    
    
    1.291
    
    
    
    .713
    
    
    
    .614
    
    
    
    .785
    
    
    
    278
 1
    Purchased March 1, 2002.2
    Ceased production February 19, 2003.
  Solid fertilizer sales volumes more than doubled in 2003 with the restart of White Springs DAP
capacity, and sales were up significantly in both North American and offshore markets. Sales of
liquid fertilizers rose by 11 percent, with more than 90 percent of our sales in the US where
PotashCorp is the largest supplier. Feed margins were under pressure as overall demand was down,
and competitive pressures from new capacity domestically and in Asia and Latin America affected
sales in both markets. Industrial volumes increased with completion of the expansion of the
purified acid plant at Aurora in the first quarter. Higher fertilizer prices reflect a somewhat improving market demand and tighter supply. US ending
inventories of both DAP and MAP were well below the five-year average. Feed prices were kept down
by new
 competitive capacity, and flat prices for industrial products reflect competitive pressure
of imports from China, Israel and Africa. Phosphate production costs were positively affected by 11 percent lower rock costs,
but this was more than offset by rising prices for the key inputs of sulfur and ammonia, up 54
percent and 47 percent, respectively, for a total of $73 million. DAP start-up costs at White
Springs also increased total costs by $7 million. Start-up issues at the new DFP plant in Aurora
increased costs by $15 million in 2003. Inventories for our finished feed products were
significantly reduced over the year as feed operating rates were reduced to draw down this
inventory. This raised unit costs of production as proportionately higher fixed costs were spread
over fewer tonnes, further impacting feed margins.
   Nitrogen Results  2004 VS 2003 Nitrogen sales increased by $54.0 million and net sales by $65.2 million as compared to 2003. Tight
supply/demand contributed to higher average realized prices, and all products had double-digit
percentage price increases in 2004. Nitrogen gross margin grew by $49.6 million. Our operation in Trinidad provided 60 percent of our
total nitrogen gross margin while our US operations contributed 22 percent. The remainder was
achieved from our US gas hedging program. Overall sales volumes were down 12 percent due to the production shutdowns at Memphis and Geismar.
Nitrogen solutions sales volumes were down 54 percent and US urea volumes were down 28 percent,
negatively impacting net sales by $46.0 million and $45.1 million, respectively. These volume
reductions were partially offset by a rise in average realized prices that increased net sales of
these products by
 a total of $33.8 million. Despite a 6-percent increase from our Trinidad
operations, total manufactured ammonia sales volumes were flat, due in part to the shutdown of
ammonia production at Geismar. Urea volumes at our Trinidad plant were down 12 percent as a result
of a turnaround and other tonnage outages, leading to a reduction in net sales of $13.3 million. The high natural gas price environment supported an 18-percent increase in US ammonia prices,
resulting in $17.3 million additional net sales. At our Trinidad facility, average ammonia and urea
prices climbed 28 percent and 18 percent, respectively, favorably impacting net sales by $85.8
million. Higher average realized prices for nitric acid and ammonium nitrate were the primary
reason for the $23.1 million increase in net sales compared to 2003. Our average unit cost of natural gas, including our hedge, was $3.71 per MMBtu in 2004, compared to
$2.96 per MMBtu in 2003. Since




---



##### 



33 POTASHCORP 2004 ANNUAL REPORT  |  MD&A 
Nitrogen Results 2004 RESULTS  NITROGEN RESULTS % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    
    
    (Decrease)
    
    
    
    Tonnes (thousands)
    
    
    (Decrease)
    
    
    Average Price per Tonne
    
    
    
    (Decrease)2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    
    2003
    
    
    2004
    
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003Sales
    
    $
    1,210.4
    
    
    $
    1,156.4
    
    
    $
    841.4
    
    
    
    
    5
    
    
    
    37Freight
    
    
    38.1
    
    
    
    48.8
    
    
    
    56.5
    
    
    
    
    (22
    )
    
    
    (14
    )Transportation
and distribution
    
    
    42.3
    
    
    
    42.8
    
    
    
    37.5
    
    
    
    
    (1
    )
    
    
    14$
    1,130.0
    
    
    $
    1,064.8
    
    
    $
    747.4
    
    
    
    
    6
    
    
    
    42Net salesAmmonia
    
    $
    458.0
    
    
    $
    368.0
    
    
    $
    232.7
    
    
    
    
    24
    
    
    
    58
    
    
    
    
    1,776
    
    
    
    1,755
    
    
    
    1,867
    
    
    
    1
    
    
    
    
    (6
    )
    
    $
    257.85
    
    
    
    $
    209.63
    
    
    $
    124.66
    
    
    
    
    23
    
    
    
    68Urea
    
    
    259.1
    
    
    
    276.9
    
    
    
    212.0
    
    
    
    
    (6
    )
    
    
    31
    
    
    
    
    1,165
    
    
    
    1,470
    
    
    
    1,592
    
    
    
    (21
    )
    
    
    
    (8
    )
    
    $
    222.44
    
    
    
    $
    188.33
    
    
    $
    133.16
    
    
    
    
    18
    
    
    
    41Nitrogen solutions
    
    
    51.1
    
    
    
    85.8
    
    
    
    93.3
    
    
    
    
    (40
    )
    
    
    (8
    )
    
    
    
    337
    
    
    
    730
    
    
    
    1,097
    
    
    
    (54
    )
    
    
    
    (33
    )
    
    $
    151.83
    
    
    
    $
    117.52
    
    
    $
    85.04
    
    
    
    
    29
    
    
    
    38Nitric acid and
ammonium nitrate
    
    
    188.1
    
    
    
    165.0
    
    
    
    127.5
    
    
    
    
    14
    
    
    
    29
    
    
    
    
    1,460
    
    
    
    1,414
    
    
    
    1,361
    
    
    
    3
    
    
    
    
    4
    
    
    $
    128.82
    
    
    
    $
    116.70
    
    
    $
    93.65
    
    
    
    
    10
    
    
    
    25Purchased
    
    
    151.5
    
    
    
    149.6
    
    
    
    61.1
    
    
    
    
    1
    
    
    
    145
    
    
    
    
    612
    
    
    
    711
    
    
    
    474
    
    
    
    (14
    )
    
    
    
    50
    
    
    $
    247.66
    
    
    
    $
    210.53
    
    
    $
    128.89
    
    
    
    
    18
    
    
    
    631,107.8
    
    
    
    1,045.3
    
    
    
    726.6
    
    
    
    
    6
    
    
    
    44
    
    
    
    
    5,350
    
    
    
    6,080
    
    
    
    6,391
    
    
    
    (12
    )
    
    
    
    (5
    )
    
    $
    207.07
    
    
    
    $
    171.92
    
    
    $
    113.69
    
    
    
    
    20
    
    
    
    51Miscellaneous
    
    
    22.2
    
    
    
    19.5
    
    
    
    20.8
    
    
    
    
    14
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,130.0
    
    
    $
    1,064.8
    
    
    $
    747.4
    
    
    
    
    6
    
    
    
    42
    
    
    
    
    5,350
    
    
    
    6,080
    
    
    
    6,391
    
    
    
    (12
    )
    
    
    
    (5
    )
    
    $
    211.23
    
    
    
    $
    175.13
    
    
    $
    116.95
    
    
    
    
    21
    
    
    
    50Fertilizer
    
    $
    438.7
    
    
    $
    480.0
    
    
    $
    317.4
    
    
    
    
    (9
    )
    
    
    51
    
    
    
    
    2,063
    
    
    
    2,810
    
    
    
    2,976
    
    
    
    (27
    )
    
    
    
    (6
    )
    
    $
    212.73
    
    
    
    $
    170.82
    
    
    $
    106.64
    
    
    
    
    25
    
    
    
    60Feed and industrial
    
    
    691.3
    
    
    
    584.8
    
    
    
    430.0
    
    
    
    
    18
    
    
    
    36
    
    
    
    
    3,287
    
    
    
    3,270
    
    
    
    3,415
    
    
    
    1
    
    
    
    
    (4
    )
    
    $
    210.28
    
    
    
    $
    178.83
    
    
    $
    125.92
    
    
    
    
    18
    
    
    
    421,130.0
    
    
    
    1,064.8
    
    
    
    747.4
    
    
    
    
    6
    
    
    
    42
    
    
    
    
    5,350
    
    
    
    6,080
    
    
    
    6,391
    
    
    
    (12
    )
    
    
    
    (5
    )
    
    $
    211.23
    
    
    
    $
    175.13
    
    
    $
    116.95
    
    
    
    
    21
    
    
    
    50Cost of goods sold
    
    
    887.2
    
    
    
    871.6
    
    
    
    700.0
    
    
    
    
    2
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    165.84
    
    
    
    $
    143.35
    
    
    $
    109.53
    
    
    
    
    16
    
    
    
    31Gross Margin
    
    $
    242.8
    
    
    $
    193.2
    
    
    $
    47.4
    
    
    
    
    26
    
    
    
    308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    45.39
    
    
    
    $
    31.78
    
    
    $
    7.42
    
    
    
    
    43
    
    
    
    328
  natural gas represents the major component of our cost of goods sold in nitrogen, this increase was
a key factor in the 16-percent rise in per-tonne costs. Within the US, our natural gas hedging
activities contributed $43.0 million to gross margin in 2004, compared to $89.9 million in 2003. 2003 VS 2002 Nitrogen gross margin more than quadrupled in 2003, reflecting sharply increased prices that
benefited PotashCorps Trinidad production, and liquidation of certain natural gas hedge contracts
in February. Poor margins at our US plants due to high natural gas costs led to the shutdown of the Memphis
plant and of Geismars ammonia and nitrogen solutions production. The reduced production of
ammonia, urea and nitrogen solutions was more than offset by considerably higher prices. Nitric
acid and ammonium nitrate volumes increased to meet demand, as did purchased sales volumes. The
companys warehouse and distribution network was used effectively for these imports. As more shutdowns in the US industry tightened supply, prices increased significantly. Product
prices, which had previously reflected the cost premium on natural gas, began trading off the
supply/demand fundamentals during the fourth quarter, providing unhedged margin to our US plants. Nitrogen production costs reflected the higher natural gas prices. PotashCorps average gas costs
in the US and
 Trinidad were up 33 percent over 2002. However, since the Trinidad facility operates
with favorable natural gas contracts which mitigate the impact of volatility, the company is a net
beneficiary of high-priced US natural gas. Trinidad provided 52 percent of nitrogen gross margin.
The remainder came from our 2003 natural gas hedges in the US, which provided a gross margin
contribution of $89.9 million. High ocean freight rates  detrimental for potash  worked in the companys favor for nitrogen as
they made imports from the Middle East less competitive in North America and helped tighten market
supply. (NITROGEN PRICES LINE CHART)




---



##### 



34 POTASHCORP 2004 ANNUAL REPORT  |MD&A  Nitrogen Results / Expenses and Other Income 2004 RESULTS  NITROGEN PRODUCTION (million tonnes) Ammonia1
    
    
    Urea Solids
    
    
    Nitrogen Solutions2Annual
    
    Production
    
    
    Annual
    
    Production
    
    
    Annual
    
    ProductionCapacity
    
    2004
    
    2003
    
    2002
    
    Capacity
    
    2004
    
    2003
    
    2002
    
    Capacity
    
    2004
    
    2003
    
    2002Trinidad
    
    
    1.851
    
    
    
    1.837
    
    
    
    1.759
    
    
    
    1.768
    
    
    
    .631
    
    
    
    .619
    
    
    
    .647
    
    
    
    .674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Augusta GA
    
    
    .688
    
    
    
    .665
    
    
    
    .655
    
    
    
    .689
    
    
    
    .381
    
    
    
    .368
    
    
    
    .334
    
    
    
    .363
    
    
    
    .581
    
    
    
    .225
    
    
    
    .223
    
    
    
    .220Lima OH
    
    
    .542
    
    
    
    .460
    
    
    
    .510
    
    
    
    .496
    
    
    
    .329
    
    
    
    .238
    
    
    
    .280
    
    
    
    .208
    
    
    
    .227
    
    
    
    .104
    
    
    
    .120
    
    
    
    .124Geismar LA4
    
    
    .483
    
    
    
    
    
    
    
    .116
    
    
    
    .369
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.028
    
    
    
    
    
    
    
    .250
    
    
    
    .721Memphis TN5
    
    
    .371
    
    
    
    
    
    
    
    .154
    
    
    
    .324
    
    
    
    .409
    
    
    
    
    
    
    
    .178
    
    
    
    .374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    
    3.935
    
    
    
    2.962
    
    
    
    3.194
    
    
    
    3.646
    
    
    
    1.750
    
    
    
    1.225
    
    
    
    1.439
    
    
    
    1.619
    
    
    
    1.836
    
    
    
    .329
    
    
    
    .593
    
    
    
    1.065
  Nitric Acid1,3
    
    
    Ammonium Nitrate SolidsAnnual
    
    Production
    
    
    Annual
    
    Production
    
    
    EmployeesCapacity
    
    2004
    
    2003
    
    2002
    
    Capacity
    
    2004
    
    2003
    
    2002
    
    (active)Trinidad
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    395Augusta GA
    
    
    .541
    
    
    
    .544
    
    
    
    .534
    
    
    
    .539
    
    
    
    .512
    
    
    
    .544
    
    
    
    .539
    
    
    
    .512
    
    
    
    111Lima OH
    
    
    .100
    
    
    
    .103
    
    
    
    .097
    
    
    
    .098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    6Geismar LA4
    
    
    .844
    
    
    
    .521
    
    
    
    .589
    
    
    
    .731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51Memphis TN5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1TOTAL
    
    
    1.485
    
    
    
    1.168
    
    
    
    1.220
    
    
    
    1.368
    
    
    
    .512
    
    
    
    .544
    
    
    
    .539
    
    
    
    .512
    
    
    
    563
    7
 1
    A substantial portion is upgraded to value-added products.2
    Based on 32% N content.3
    As 100% HNO3 tonnes.4
    Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003.5
    Indefinitely shut down production June 4, 2003.6
    BP Chemicals operates the Lima facility under an operational agreement with PCS Nitrogen.7
    360 contract employees work at the nitrogen plants, for a total active workforce of 923.
 Expenses and Other Income Dollars (millions)
    
    
    % Increase (Decrease)2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003Selling and administrative
    
    $
    130.6
    
    
    $
    96.1
    
    
    $
    91.7
    
    
    
    36
    
    
    
    5Provincial mining and other taxes
    
    
    92.6
    
    
    
    57.0
    
    
    
    68.0
    
    
    
    62
    
    
    
    (16
    )Provision
for plant shutdowns
    
    
    
    
    
    
    123.7
    
    
    
    
    
    
    
    (100
    )
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    3.6
    
    
    
    140.5
    
    
    
    
    
    
    
    (97
    )
    
    
    Foreign exchange loss
    
    
    19.7
    
    
    
    51.9
    
    
    
    5.5
    
    
    
    (62
    )
    
    
    844Other income
    
    
    79.4
    
    
    
    33.2
    
    
    
    24.8
    
    
    
    139
    
    
    
    34Interest expense
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    (8
    )
    
    
    10Income tax expense (recovery)
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    n/m
    
    
    
    (168
    )
 2004 VS 2003  Selling and administrative expenses increased by $34.5 million, primarily due to compensation
programs tied to our share price performance and our cash flow return. Our share price nearly
doubled over the course of the year, requiring higher accruals in respect of these programs.
Additionally, $11.1 million in compensation related to stock options was expensed during 2004. This
non-cash expense arose on the prospective adoption of a new provision of Canadian GAAP in December
2003. Only $1.0 million relating to stock option expense was recorded in 2003. Provincial mining and other taxes increased by $35.6 million year over year as a direct result of
significant increases in profits per tonne, sales volumes and prices in our Canadian potash
operations.
 The company experienced a net foreign exchange loss of $19.7 million in 2004 (2003  $51.9 million
loss). The decline in foreign exchange loss reflects the Canadian to US dollar exchange rate
changes, year over year. The Canadian dollar closed the year $0.09 stronger than at December 31,
2003, which compares with an appreciation of $0.29 from December 31, 2002 to December 31, 2003. The
net foreign exchange loss was also reduced in part by $8.0 million in gains realized from foreign
currency forward contracts. Other income rose by $46.2 million, chiefly as a result of: a $34.4-million gain on sale of
approximately 9.8 million shares of SQM in December; increases in our share of earnings of equity
investees; and growth in dividends from our portfolio investments.




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##### 



35 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Expenses and Other Income 2004 RESULTS   Interest expense decreased by $7.3 million, due to lower total debt balances outstanding, interest
rate hedging activities and a substantial build-up of cash and cash equivalents. Weighted average
long-term debt outstanding in the year was $1,269.5 million (2003  $1,230.9 million) with a
weighted average interest rate of 6.9 percent (2003  7.0 percent). The weighted average interest
rate on short-term debt outstanding in the year was 1.4 percent (2003  1.4 percent). The companys effective consolidated income tax rate in 2004 approximated 33 percent of income
before income taxes when adjusted to reflect the non-taxable gain on the sale of SQM shares and the
provision for PCS Yumbes. This compares with a rate of approximately 40 percent (exclusive of the
provision for PCS Yumbes and a future income tax reversal of $6.5 million) for 2003. The decrease
in rate is due primarily to the impact of Saskatchewan resource tax incentives, changes to the
Canadian federal resource allowance and the scheduled Canadian federal statutory rate reduction.
Income tax expense increased, driven by the rise in operating income levels. For the year, 80
percent of the effective rate pertained to current income taxes and 20 percent to future income
taxes. The increase in the current tax provision from zero percent in 2003 was principally due to
the substantial rise in potash operating income in Canada. STATUS OF 2003 RESTRUCTURING ACTIVITIES Nitrogen and Phosphate Plant Shutdowns In 2003, we indefinitely shut down our Memphis, Tennessee plant and suspended production of ammonia
and nitrogen solutions at Geismar, Louisiana due to high US natural gas costs and low product
margins. The operations have not been restarted. We recorded $4.8 million in employee special
termination costs, $101.6 million in long-lived asset impairment charges and $12.4 million in parts
inventory writedowns. To date, we have made payments relating to the employee terminations
totalling $4.4 million and expect to pay the remainder in 2005. We also expect to incur other
shutdown-related costs of approximately $12.1 million, the timing of which is not yet determinable,
and nominal annual expenditures for site security and other maintenance costs. The phosphate feed plant at Kinston, North Carolina ceased operations in 2003. In that year, the
company recorded $0.6 million for costs of special termination benefits, $0.3 million for parts
inventory writedowns and $4.0 million for long-lived asset impairment charges. The Kinston property
was sold in 2004 for nominal proceeds. No additional significant costs were incurred in connection
with the nitrogen or phosphate plant shutdowns in 2004.
 Provision for PCS Yumbes S.C.M. In December 2004, we concluded the sale of 100 percent of our shares of PCS Yumbes to SQM. The
total gain on the sale was $3.5 million, of which $2.6 million was recognized in 2004. During the
year, we also recorded an additional writedown of $6.2 million, relating primarily to certain
mining machinery and equipment not transferred to SQM. In 2003, in connection with entering into the share purchase (and related) agreement with SQM, we
had recorded long-lived asset impairment charges of $77.4 million, non-parts inventory writedowns
of $50.2 million, employee contractual termination benefit costs of $1.8 million and $11.1 million
for early termination penalties relating to other contractual arrangements. 2003 VS 2002 Selling and administrative expenses increased by $4.4 million, primarily due to the stronger
Canadian dollar. Other contributing factors were increases in amortization expense, consulting and
professional fees, fringe benefits and stock-based compensation expense. These were substantially
offset by company-wide cost restraints, including pay reductions for the executive management team,
a salary freeze for middle management and reduction in company contributions to employee savings
plans. A revised tax structure for potash producers in Saskatchewan contributed $5.6 million to earnings,
the equivalent of $0.06 per share. The companys foreign exchange loss increased significantly over 2002 due to the strengthening of
the Canadian dollar relative to the US dollar. At December 31, 2003, the Canadian dollar was $0.29
higher than at December 31, 2002, compared with a $0.01 increase the preceding year. This was the
equivalent of $0.60 per share, compared with $0.02 in 2002. Exposure to the Brazilian real had a
nominal impact on the company in 2003 but contributed a loss of nearly $0.05 per share in 2002. For the year, other income was up $8.4 million, primarily due to APC equity earnings, nitrogen
insurance proceeds, the excess of 2003 equity earnings from SQM over 2002 equity earnings and
dividends, and higher ICL dividends. Interest expense increased, primarily due to the issuance of $250.0 million of 4.875-percent
10-year notes in March 2003 under the companys shelf registration. These notes replaced lower-cost
commercial paper. Weighted average long-term debt outstanding for the year was $1,230.9 million,
compared with $1,023.3 million in 2002, with a weighted average interest rate of 7.0 percent




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##### 



36 POTASHCORP 2004 ANNUAL
REPORT  |MD&A
 Cash Requirements LIQUIDITY AND CAPITAL RESOURCES  (2002  7.4 percent). The weighted average interest rate on short-term debt for 2003 was 1.4
percent (2002  1.7 percent). The effective consolidated income tax rate in 2003 was approximately 40 percent (exclusive of the
charges relating to PCS Yumbes described previously and a future income tax reversal of $6.5
million). This compares with a rate of approximately 36 percent for 2002. The increase was
primarily due to the expiration of the last tax holiday in Trinidad. The 2003 tax provision was all
future income taxes, compared with a current/future split of 80/20 for 2002. The decrease in the
current portion was primarily due to utilization of tax losses in the US as well as certain
reclassifications from current to future income taxes. Liquidity and Capital Resources Liquidity risk arises from our general funding needs and in the management of our assets,
liabilities and optimal capital structure. We manage liquidity risk to maintain sufficient liquid
financial resources to fund our balance sheet and meet our obligations in the most cost-effective
manner possible. CASH REQUIREMENTS The following aggregated information about our contractual obligations and other commitments aims
to provide insight into our short- and long-term liquidity and capital resource requirements. The
information presented in the table below does not include obligations that have original maturities
of less than one year, planned capital expenditures or potential share repurchases. Long-Term Debt Long-term debt consists of $1,250.0 million of notes payable that were issued under our US shelf
registration statements, $9.0 million of Industrial Revenue and Pollution Control Obligations, a
net of $5.9 million under a back-to-back loan arrangement (described in Note 12 to the consolidated
financial statements) and other commitments of $4.0 million payable over the next five years. The
notes payable are unsecured. Of the notes outstanding,
 $400.0 million bear interest at 7.125
percent and mature in 2007, $600.0 million bear interest at 7.750 percent and mature in 2011 and
$250.0 million bear interest at 4.875 percent and mature in 2013. There are no sinking fund
requirements. The Industrial Revenue and Pollution Control Obligations bear interest at varying
rates, are secured by bank letters of credit and have no sinking fund requirements. The notes
payable are not subject to any financial test covenants but are subject to certain customary
covenants (including limitations on liens and sale and leaseback transactions) and events of
default, including an event of default for acceleration of other debt in excess of $50.0 million.
Neither the Industrial Revenue and Pollution Control Obligations nor the other long-term debt
instruments are subject to any financial test covenants but each is subject to certain customary
covenants and events of default, including, for other long-term debt, an event of default for
non-payment of other debt in excess of $25.0 million. Non-compliance with such covenants could
result in accelerated payment of the related debt. The company was in compliance with all covenants
as at December 31, 2004. The commitments in the table below include our cumulative scheduled interest payments on fixed and
variable rate long-term debt, totalling $479.7 million. Interest on variable rate debt is based on
interest rates prevailing at December 31, 2004. Operating Leases We have long-term operating lease agreements for buildings, port facilities, equipment, ocean-going
transportation vessels, mineral leases and railcars, the latest of which expires in 2025. The most
significant operating leases consist of three items. The first is our lease of railcars, which
extends to approximately 2020. The second is the lease of port facilities at the Port of Saint John
for shipping New Brunswick potash offshore. This lease runs until 2018. The third is the lease of
three vessels for transporting ammonia from Trinidad. One vessel agreement runs until 2011; the
others terminate in 2016.
    CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTSPayments Due By Period  Dollars (millions) Total
    
    
    Within 1 year
    
    
    1 to 3 years
    
    
    3 to 5 years
    
    
    Over 5 yearsLong-term debt (including interest)
    
    $
    1,748.6
    
    
    $
    97.9
    
    
    $
    562.6
    
    
    $
    118.7
    
    
    $
    969.4Operating leases
    
    
    567.0
    
    
    
    78.9
    
    
    
    132.7
    
    
    
    98.1
    
    
    
    257.3Purchase obligations
    
    
    907.2
    
    
    
    104.5
    
    
    
    190.9
    
    
    
    159.8
    
    
    
    452.0Other commitments
    
    
    54.3
    
    
    
    13.4
    
    
    
    19.9
    
    
    
    16.8
    
    
    
    4.2Other long-term liabilities
    
    
    317.9
    
    
    
    43.3
    
    
    
    67.5
    
    
    
    47.4
    
    
    
    159.7Total
    
    $
    3,595.0
    
    
    $
    338.0
    
    
    $
    973.6
    
    
    $
    440.8
    
    
    $
    1,842.6




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##### 



37 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Sources and Uses of Cash LIQUIDITY AND CAPITAL RESOURCES  Purchase Obligations We have long-term agreements for the purchase of sulfur for use in the production of phosphoric
acid. These agreements provide for minimum purchase quantities, and certain prices are based on
market rates at the time of delivery. The commitments included in the table on Page 36 are based on
contract prices. We have entered into long-term natural gas contracts with the National Gas Company of Trinidad. The
contracts provide for prices that vary with ammonia market prices, escalating floor prices and
minimum purchase quantities. The commitments included in the table on Page 36 are based on floor
prices and minimum purchase quantities. We also have a long-term agreement for the purchase of phosphate rock used at our Geismar facility.
The commitments included in the table on Page 36 are based on the expected purchase quantity and
current net base prices. Other Commitments Other operating commitments consist principally of amounts relating to our contracts to purchase
limestone that run through 2007 and various rail freight contracts, the latest of which expire in
2010. Other Long-Term Liabilities Other long-term liabilities consist primarily of accrued post-retirement/ post-employment benefits,
environmental costs and asset retirement obligations. Capital Expenditures During 2005, we expect to incur capital expenditures of approximately $225.0 million for
opportunity capital and approximately $125.0 million to sustain operations at existing levels. Share Repurchase Program In January 2005, our Board of Directors authorized a share repurchase program of up to 5.5
million common shares (approximately 5 percent of the companys issued and outstanding common
shares) through a normal course issuer bid. If considered advisable, shares may be repurchased from
time to time on the open market through February 14, 2006 at prevailing market prices. The timing
and amount of purchases, if any, will be dependent upon the availability and alternative uses of
capital, market conditions and other factors.
 SOURCES AND USES OF CASH  Dollars (millions)% Increase2004
    
    
    2003
    
    
    (Decrease)Cash provided by operating activities
    
    $
    649.6
    
    
    $
    381.5
    
    
    
    70Cash used in investing activities
    
    $
    (216.8
    )
    
    $
    (357.7
    )
    
    
    (39
    )Cash provided by (used in)
financing activities
    
    $
    21.4
    
    
    $
    (43.6
    )
    
    
    n/m
 Dollars (millions) except ratio amountsDecember 31
    
    
    December 31
    
    
    % Increase2004
    
    
    2003
    
    
    (Decrease)Current assets
    
    $
    1,243.6
    
    
    $
    733.9
    
    
    
    69Current liabilities
    
    $
    (703.7
    )
    
    $
    (557.8
    )
    
    
    26Working capital
    
    $
    539.9
    
    
    $
    176.1
    
    
    
    207Current ratio
    
    
    1.77
    
    
    
    1.32
    
    
    
    34
 Our liquidity needs can be met through a variety of sources, including: cash generated from
operations, short-term borrowings against our line of credit and commercial paper program, and
long-term debt issued under our US shelf registration statement and drawn down under our syndicated
credit facility. Our primary uses of funds are operational expenses, sustaining and opportunity
capital spending, dividends, and interest and principal payments on our debt securities. Cash provided by operating activities increased in 2004 by 70 percent, or $268.1 million. Higher
gross margin in potash ($422.8 million as compared to $203.7 million) contributed significantly to
the improvement. Working capital requirements were down by $103.0 million, primarily due to income
taxes and provincial mining taxes payable on substantially higher profits in our Canadian potash
operations, increases in margin deposits due to fluctuations in natural gas prices and increases in
short- and long-term incentive program accruals that are directly correlated with the companys
performance. The changes in these working capital items were partially offset by a rise in accounts
receivable due to fourth-quarter sales being 21 percent higher than in the same period last year.
Our customer credit policies have remained substantially consistent with 2003. Cash used in investing activities declined by $140.9 million. However, there were several key
sources and uses of funds:  
    We increased our investment in SQM by acquiring all the outstanding shares of an indirect
subsidiary of ICL for a net cash outlay of $97.2 million. Prior
to this transaction, to be in a position to comply with certain
Chilean securities ownership thresholds, we sold certain of our shares in SQM for $66.3
million.




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38 POTASHCORP 2004 ANNUAL REPORT  | MD&A  Debt Instruments / Off-Balance Sheet Arrangements LIQUIDITY AND CAPITAL RESOURCES  
    We concluded the sale of 100 percent of our shares of PCS Yumbes to SQM. Proceeds totalled
$42.3 million, including certain working capital adjustments of $6.2 million and contingent
consideration of $1.1 million. We received $34.5 million of the sale price prior to the end of the
year.
    We increased our investment in APC by $8.3 million, supplementing our initial $178.3 million
investment in 2003.
    We invested $220.5 million (2003  $150.7 million) in capital projects. The increase related
primarily to our expansion and compactor upgrade project at Rocanville. Cash provided by financing activities during the year was $21.4 million, an increase of $65.0
million over 2003. This was mainly due to the receipt of $102.3 million more proceeds from the
issuance of common shares (mostly arising from the exercise of stock options as our share price
appreciated substantially during the year). The proceeds were offset by a $33.5-million net
increase in short- and long-term debt payments during the year. In 2003, we had issued $250.0
million of notes under our US shelf registration statement, and the net proceeds from that issue
were put toward short-term debt repayments of $296.8 million in that year. In 2004, we used our
cash generated from operations to reduce commercial paper balances by $82.7 million. We have historically paid quarterly dividends to shareholders at a rate of $0.125 per share on a
post-split basis. In July 2004, we announced that our quarterly cash dividend payment would be
increasing to $0.15 per share, commencing in November 2004. As a result, total dividend payments to
shareholders increased by $3.8 million. We believe that internally generated cash flow, supplemented by borrowing from existing financing
sources, will be sufficient to meet our anticipated capital expenditures and other cash
requirements in 2005, exclusive of any possible acquisitions. At this time, we do not reasonably
expect any presently known trend or uncertainty to affect our ability to access our historical
sources of cash. DEBT INSTRUMENTS  Dollars (millions)Amount
    
    
    AmountOutstanding at
    
    
    Available atTotal
    
    
    December 31
    
    
    December 31Amount
    
    
    2004
    
    
    2004Syndicated credit facility
    
    $
    750.0
    
    
    $
    
    
    
    $
    656.5Line of credit
    
    
    75.0
    
    
    
    15.1
    
    
    
    59.9Commercial paper
    
    
    500.0
    
    
    
    93.5
    
    
    
    406.5US shelf registration
    
    
    2,000.0
    
    
    
    1,250.0
    
    
    
    750.0
 We have a $750.0 million syndicated credit facility, renewable annually, which provides for
unsecured advances. In September 2004, we renewed the facility for one year. The amount available
to us is the total committed amount less direct borrowings and commercial paper outstanding. No
funds were borrowed under the facility as of December 31, 2004. The line of credit is also
renewable annually, and outstanding letters of credit and direct borrowings reduce the amount
available. Both the line of credit and the syndicated credit facility have financial tests and
other covenants with which we must comply at each quarter-end. Principal covenants and events of
default under the credit facility and line of credit require debt to capital of less than or equal
to 0.55:1, long-term debt to EBITDA (defined in the respective agreements as earnings before
interest, income taxes, provincial mining and other taxes, depreciation, amortization and other
non-cash expenses) of less than or equal to 3.5:1, tangible net worth greater than or equal to
$1,250.0 million and debt of subsidiaries less than $590.0 million. The syndicated credit facility
and line of credit are also subject to other customary covenants and events of default, including
an event of default for non-payment of other debt in excess of Cdn $40.0 million. Non-compliance
with any of the above covenants could result in accelerated payment of the related debt and termination of the line
of credit. We were in compliance with all covenants as at December 31, 2004. The commercial paper market is a source of same day cash for the company, and we have a
commercial paper program of up to $500.0 million. Access to this source of short-term financing
depends primarily on maintaining our R1 low credit rating by Dominion Bond Rating Service (DBRS)
and conditions in the money markets. Our credit rating, as measured by Standard & Poors senior
debt ratings, remained unchanged at BBB+ with a stable outlook, and our Moodys rating was
unchanged at Baa2 with a positive outlook. We also have a US shelf registration statement under which we may issue up to an additional $750.0
million in unsecured debt securities. For 2004, our weighted average cost of capital was 8.4 percent (2003  7.3 percent), of which 90
percent represented equity. The increase was principally due to a shift in mix to equity  which
carries a higher cost than debt  as the average stock price for the year rose 55 percent compared
to 2003 and closed 92 percent higher. OFF-BALANCE SHEET ARRANGEMENTS We enter into off-balance sheet arrangements in the normal course of our business, including
guarantee contracts, certain derivative instruments and long-term fixed price contracts. We do not
reasonably




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39 POTASHCORP 2004 ANNUAL
REPORT  |  MD&A  Off-Balance Sheet Arrangements LIQUIDITY AND CAPITAL RESOURCES   expect any presently known trend or uncertainty to affect our ability to continue using these
arrangements. These types of arrangements are discussed below. Guarantee Contracts In the normal course of operations, we provide indemnifications that are often standard contractual
terms to counterparties in transactions such as purchase and sale contracts, service agreements,
director/officer contracts and leasing transactions. These indemnification agreements may require
us to compensate the counterparties for costs incurred as a result of various events. The terms of
these indemnification agreements will vary based upon the contract, the nature of which prevents us
from making a reasonable estimate of the maximum potential amount that could be required to pay to
counterparties. Historically, we have not made any significant payments under such indemnifications
and no amounts have been accrued in our consolidated financial statements with respect to these
guarantees. We have guaranteed various debt obligations (such as overdrafts, lines of credit with
counterparties for derivatives, and back-to-back loan arrangements) and other commitments (such as
railcar leases) for certain subsidiaries. We would be required to perform on these guarantees in
the event of default by the guaranteed parties. No material loss is anticipated by reason of such
agreements and guarantees. At December 31, 2004, the maximum potential amount of future
(undiscounted) payments under significant guarantees provided to third parties approximated $159.9
million, representing the maximum risk of loss if there were a total default by the guaranteed
parties, without consideration of possible recoveries under recourse provisions or from collateral
held or pledged. At December 31, 2004, no subsidiary balances subject to guarantees were
outstanding in connection with the companys cash management facilities, and we had no liabilities
recorded for other obligations other than subsidiary bank borrowings of approximately $5.9 million
and cash margin requirements of $28.5 million to maintain derivatives. We have also guaranteed the gypsum stack capping, closure and post-closure obligations of White
Springs and PCS Nitrogen, in Florida and Louisiana, respectively, pursuant to the financial
assurance regulatory requirements in those states. The State of Florida is presently reviewing, and
is expected to revise, its financial assurance requirements to ensure that responsible parties have
sufficient resources to cover all closure and post-closure costs and liabilities associated with
gypsum stacks. This review may result in the imposition of more stringent requirements to
demonstrate financial responsibility and/or inclusion of a greater
scope of closure and post-closure costs than under current law. All amounts subject to guarantee are included in the
accrued costs reflected in Note 15 to the consolidated financial statements.
 The environmental regulations
of the Province of Saskatchewan
require each potash mine to have
decommissioning and reclamation
(D&R) plans. In 2001, agreement was reached with the
provincial
government on the financial assurances for the D&R plan to
cover
an interim period to July 1, 2005.
In October 2004, this interim period was extended to
July 1, 2006. A government/industry task
force
has been established to assess decommissioning options for all
Saskatchewan potash producers and to
produce mutually acceptable
revisions to the plan schedules. We have posted a Cdn
$2.0 million
letter of credit as collateral that will remain in effect until the
revised
plans are accepted. Derivative Instruments We use derivative financial instruments to manage exposure to commodity price, interest rate and
foreign exchange rate fluctuations. Only our hedging activities represent off-balance sheet items. We employ derivative instruments to hedge the future cost of committed and anticipated natural gas
purchases primarily for our US nitrogen plants. By policy, the maximum period for these hedges
cannot exceed five years. Exceptions to policy may be made with the specific approval of our Gas
Policy Advisory Committee. The fair value of our gas hedging contracts at December 31, 2004 was
$66.5 million (2003  $59.8 million). We primarily use interest rate swaps to manage the interest rate mix of our total debt portfolio
and related overall cost of borrowing. In January and February 2004, we entered into interest rate
swap agreements with total notional amounts of $300.0 million, whereby we, over the remaining terms
of the underlying notes, would receive a fixed rate payment equivalent to the fixed interest rate
of the underlying note and pay a floating rate of interest based on six-month US dollar LIBOR. In
October 2004, we terminated the interest rate swap contracts. Note 29 to our consolidated financial statements provides more detail on our accounting for and
types of derivatives. Long-Term Fixed Price Contracts Certain of our long-term raw materials agreements contain fixed price components. Our significant
agreements, and the related obligations under such agreements, are discussed in Cash
Requirements.




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40 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Market Risks / Related Party Transactions / Critical Accounting Estimates LIQUIDITY AND CAPITAL RESOURCES  Market Risks Associated with Financial Instruments Market risk is the potential for loss from changes in the value of financial instruments. The
following discussion provides additional detail regarding our exposure to the risks of changing
commodity prices, interest rates and foreign exchange rates. A discussion of enterprise-wide risk
management can be found on Pages 44 and 45. COMMODITY RISK Our US nitrogen results are
significantly affected by the price of natural gas. As discussed on
Page 39,
we employ derivative commodity instruments related to a portion of our natural gas requirements
(primarily futures, swaps and options) for the purpose of managing our exposure to commodity price
risk in the purchase of natural gas, not for speculative or trading purposes. Changes in the market
value of these derivative instruments have a high correlation to changes in the spot price of
natural gas. A sensitivity analysis has been prepared to estimate our market risk exposure arising from
derivative commodity instruments. The fair value of such instruments is calculated by valuing each
position using quoted market prices. Market risk is estimated as the potential loss in fair value
resulting from a hypothetical 10-percent adverse change in such prices. The results of this
analysis indicate that as of December 31, 2004, our estimated
derivative commodity instruments
market risk exposure was $46.2 million (2003  $27.5 million). Actual results may differ from this
estimate. Changes in the fair value of such derivative instruments, with maturities in 2005 through
2014, will generally relate to changes in the spot price of natural gas purchases. INTEREST RATE RISK We address interest rate risk by using a diversified portfolio of fixed and floating rate
instruments. This exposure is also managed by aligning current and long-term assets with demand and
fixed-term debt and by monitoring the effects of market changes in interest rates. As at December 31, 2004, our short-term debt (comprised of commercial paper) was $93.5 million, our
current portion of long-term debt was $10.3 million and our long-term portion was $1,258.6 million.
Long-term debt is comprised primarily of $1,250.0 million of notes payable that were issued under
our US shelf registration statements. Since most of our outstanding borrowings have fixed interest
rates, the primary market risk exposure is to changes in fair value. It is estimated that, all else
constant, a hypothetical 10-percent change in interest rates would not materially impact our
results of operations or financial position. If interest rates changed significantly, management
 would likely take actions to manage our exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the sensitivity analysis
assumes no changes in our financial structure. FOREIGN EXCHANGE RISK We also enter into foreign currency forward contracts for the sole purpose of limiting exposure to
exchange rate fluctuations relating to Canadian dollar operating and capital expenditures. These
contracts are not designated as hedging instruments for accounting purposes. Gains or losses
resulting from foreign exchange contracts are recognized in earnings in the period in which changes
in fair value occur. As at December 31, 2004, we had entered into foreign currency forward contracts to sell US dollars
and receive Canadian dollars in the notional amount of $54.1 million (2003  $46.0 million) at an
average exchange rate of 1.2306 (2003  1.3315). We also had small forward contracts outstanding as
at December 31, 2004 to reduce exposure to the euro and Swiss franc. Maturity dates for all forward
contracts are within 2005. Related Party Transactions The company sells potash from our Saskatchewan mines for use outside of North America
exclusively to Canpotex Limited. Sales for the year ended December 31, 2004 were $421.9 million
(2003 $260.6 million; 2002  $241.2 million). Sales to Canpotex are at prevailing market prices
and are settled on normal trade terms. In connection with entering into the share transfer agreement with SQM, PCS Yumbes agreed to
purchase potash from SQM and sell to SQM all of its potassium nitrate production at a negotiated
price that approximated market value. Both agreements were in effect until closing of the PCS
Yumbes sale agreement in December 2004. Potash purchases from SQM for the year were $7.0 million
(2003  $13.1 million; 2002  $17.9 million). Potassium nitrate sales to SQM for the year were
$25.1 million (2003  $25.8 million; 2002  $2.1 million). All transactions with SQM are settled on
normal trade terms. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with Canadian
GAAP. These principles differ in certain significant respects from US GAAP, and these differences
are described and quantified in Note 36 to the consolidated financial statements.




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41 POTASHCORP 2004 ANNUAL
REPORT  |  MD&A
 Critical Accounting Estimates CRITICAL ACCOUNTING ESTIMATES   Our significant accounting policies are contained in Note 2 to the consolidated financial
statements. Certain of these policies involve critical accounting estimates because they require us
to make particularly subjective or complex judgments about matters that are inherently uncertain
and because of the likelihood that materially different amounts could be reported under different
conditions or using different assumptions. We have discussed the development, selection and
application of our key accounting policies, and the critical accounting estimates and assumptions
they involve, with the audit committee of the Board of Directors, and it has reviewed the
disclosures described in this section. The following section discusses the critical accounting estimates and assumptions that management
has made and how they affect the amounts reported in the consolidated financial statements. ASSET IMPAIRMENT We review long-lived assets and intangible assets with finite lives whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be fully recoverable.
Determination of recoverability is based on an estimate of undiscounted future cash flows, and
measurement of an impairment loss is based on the fair value of the assets. We believe that the
accounting estimate related to asset impairment is a critical accounting estimate because: (1) it
is highly susceptible to change from period to period as it requires management to make assumptions
about future sales, margins and market conditions over the long-term life of the assets; and (2)
the impact that recognizing an impairment would have on our financial position and results of
operations may be material. During 2003, we indefinitely shut down certain nitrogen operations,
ceased operations at a phosphate feed plant and entered into an agreement to sell our shares of PCS
Yumbes. In connection with these activities, we recognized various impairment charges, as more
fully described in Notes 22 and 23 to the consolidated financial statements. As at December 31,
2004, we determined that there were no other triggering events requiring additional impairment
analysis. Goodwill is not amortized, but is assessed for impairment at the reporting unit level annually, or
sooner if events or changes in circumstances indicate that the carrying amount could exceed fair
value. Goodwill is assessed for impairment using a two-step approach, with the first step being to
assess whether the fair value of the reporting unit to which the goodwill is associated is less
than its carrying value. If this is the case, a second impairment test is performed which requires
a comparison of the fair value of goodwill to its carrying amount. If fair value is less than
carrying value, goodwill is considered impaired and an impairment charge must
 be recognized
immediately. The fair value of our reporting units is determined from internally developed
valuation models that consider various factors such as normalized and projected earnings, present
value of future cash flows and discount rates. In each of the last two years we tested goodwill for
impairment, and in each year we determined that, based on our assumptions, the fair value of our
reporting units exceeded their carrying amounts and therefore we did not recognize impairment. Long-term investments that are carried at cost or accounted for using the equity method are also
reviewed to determine whether fair value is below carrying value. An investment is considered
impaired if any such decline is considered other than temporary. Factors we consider in determining
whether a loss is temporary include the length of time and extent to which fair value has been
below cost; financial condition and near-term prospects of the investee; and our ability and intent
to hold the investment for a period of time sufficient to allow for any anticipated recovery. For
actively traded securities, we typically consider quoted market value to be fair value. For thinly
traded securities where market quotes are either not available or not representative of fair value,
we use estimation techniques such as market or income valuation approaches to determine fair value. Although we believe our estimates are reasonable and consistent with current conditions, internal
planning and expected future operations, such estimates are subject to significant uncertainties
and judgments. As a result, it is reasonably possible that the amounts reported for asset
impairments could be different if we were to use different assumptions or if market and other
conditions were to change. The changes could result in non-cash charges that could materially
affect our consolidated financial statements. RESTRUCTURING CHARGES We approved plans to restructure various operations in 2003 which required us to make critical
estimates regarding exit costs. Because such activities are complex processes that take several
months to complete, they involve periodically reassessing the estimates made when the original
decision to exit the activities was made. As a result, we may have to change originally reported
estimates as actual payments are made or the related activities are completed. POST-RETIREMENT AND POST-EMPLOYMENT COSTS We sponsor plans that provide pensions and other retirement and post-employment benefits for most
of our employees. We believe the accounting estimates related to our employee benefit plan costs
are critical accounting estimates because: (1) the amounts are based on complex actuarial
calculations using several assumptions; and




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42 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Critical Accounting Estimates CRITICAL ACCOUNTING ESTIMATES  (2) given the magnitude of our estimated costs, differences in actual results or changes in
assumptions could materially affect our consolidated financial statements. Due to the long-term nature of these plans, the calculation of expenses and obligations depends on
various assumptions such as discount rates, expected rates of return on assets, health care cost
trend rates, projected salary increases, retirement age, mortality and termination rates. These
assumptions are determined by management and are reviewed annually by our actuaries. The discount
rate assumptions used in determining obligations and expense reflect market yields on high-quality
debt instruments with cash flows that match expected benefit payments. The expected rate of return
on plan assets assumption is based on expected returns for the various asset classes. Other
assumptions are based on actual experience and our best estimates. Actual results that differ from
the assumptions are accumulated and amortized over future periods and, therefore, generally affect
recognized expense and the recorded obligation in future periods. The following table provides the sensitivity of benefit obligations and expense for our US plans
(which represent 90 percent of our benefit obligations) to changes in the discount rate, expected
long-term return on plan assets assumption and rate of compensation increase. The sensitivity
analysis should be used with caution as the changes are hypothetical and the impact of changes in
each key assumption may not be linear. For further details on our annual expense and obligation,
see Note 14 to the consolidated financial statements.  IMPACT OF A 0.5% CHANGE IN KEY ASSUMPTIONSDollars (millions)Pension Plans
    Other PlansObligation
    
    
    Expense
    
    
    Obligation
    
    
    ExpenseDiscount rateDecrease in assumption
    
    $
    34.0
    
    
    $
    3.1
    
    
    $
    16.9
    
    
    $
    1.7Increase in assumption
    
    
    (32.7
    )
    
    
    (3.2
    )
    
    
    (16.2
    )
    
    
    (1.8
    )Expected long-term rate of returnDecrease in assumption
    
    
    n/a
    
    
    
    1.6
    
    
    
    n/a
    
    
    
    n/aIncrease in assumption
    
    
    n/a
    
    
    
    (1.6
    )
    
    
    n/a
    
    
    
    n/aRate of compensation increaseDecrease in assumption
    
    
    (7.7
    )
    
    
    (1.3
    )
    
    
    n/a
    
    
    
    n/aIncrease in assumption
    
    
    7.5
    
    
    
    1.3
    
    
    
    n/a
    
    
    
    n/a
 ASSET RETIREMENT OBLIGATIONS AND OTHER ENVIRONMENTAL COSTS We have significant liabilities relating to asset retirement obligations and other environmental
matters. The major categories of our asset retirement obligations include reclamation and
restoration costs at
 our potash and phosphate mining operations (most particularly phosphate
mining). Other environmental liabilities typically relate to regulatory compliance, environmental
management associated with ongoing operations other than mining, and site assessment and
remediation of contamination related to the activities of the company and its predecessors. We believe the accounting estimates related to asset retirement obligations and other environmental
costs are critical accounting estimates because: (1) we will not incur most of these costs for a
number of years, requiring us to make estimates over a long period; (2) environmental laws and
regulations and interpretations by regulatory authorities could change in the future or
circumstances affecting our operations could change, either of which could result in significant
changes to our current plans; and (3) given the magnitude of our estimated costs, changes in any or
all of these estimates could have a material impact on our consolidated financial statements. Accruals for asset retirement obligations and other environmental matters totalled $100.7 million
at December 31, 2004. In arriving at this amount we considered the nature, extent and timing of
current and proposed reclamation and closure techniques in view of present environmental laws and regulations.
It is reasonably possible the ultimate costs could change in the future and that changes to these
estimates could have a material effect on our consolidated financial statements. DEPRECIATION AND AMORTIZATION We depreciate certain mining and milling assets using the units of production method based on the
shorter of estimates of reserve or service lives. We have other assets that we depreciate on a
straight-line basis over their estimated useful lives. We perform assessments of our existing assets and depreciable lives in connection with the review
of mine operating plans. When we determine that assigned asset lives do not reflect the expected
remaining period of benefit, we make prospective changes to their depreciable lives. There are a
number of uncertainties inherent in estimating reserve quantities, particularly as they relate to
assumptions regarding future prices, the geology of our mines, the mining methods we use and the
related costs we incur to develop and mine our reserves. Changes in these assumptions could result
in material adjustments to our reserve estimates, which could result in changes to units of
production depreciation expense in future periods. Although some degree of variability is expected,
we believe the extent of our technical data and operating experience mitigates the potential for
significant changes in reserve estimates.




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43 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Recent Accounting Changes RECENT ACCOUNTING CHANGES   As discussed on Page 41, we review and evaluate our long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amounts may not be recoverable. We
believe it is unlikely that revisions to our estimates of reserves would give rise to an impairment
of our assets because of their significant size in relation to our asset carrying values. INCOME TAXES We operate in a specialized industry and in several tax jurisdictions. As such, our income is
subject to various rates of taxation. The breadth of the companys operations and the global
complexity of tax regulations require assessments of uncertainties and judgments in estimating the
ultimate taxes the company will pay. The final taxes paid are dependent upon many factors,
including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation
and resolution of disputes arising from federal, provincial, state and local tax audits. The
resolution of these uncertainties and the associated final taxes may result in adjustments to our
tax assets and tax liabilities. We estimate future income taxes based upon temporary differences between the income and losses that
we report in our consolidated financial statements and our taxable income and losses as determined
under applicable tax laws. We record a valuation allowance against our future income tax assets
when we believe, based on all available evidence, that it is not more likely than not that all of
our future income tax assets recognized will be realized prior to their expiration. The amount of
the future income tax asset recognized and considered realizable could, however, be reduced if
projected income is not achieved. Recent Accounting Changes 2004 Effective January 1, 2004, we changed certain of our accounting policies in response to new
accounting standards. We now report sales, freight costs and transportation and distribution
expenses separately on our Consolidated Statements of Operations and Retained Earnings, rather than
on a net basis. This had no effect on gross margin or net income, and all comparative information
has been appropriately reclassified. Other changes related to our accounting for asset retirement
obligations and hedging relationships. Neither of these changes had a significant effect on our
results of operations or financial position. For further information, see Note 3 to our
consolidated financial statements.
 2005 The US accounting standard for variable interest entities (VIEs) was effective for the company in
the first quarter of 2004, and there was no material impact on our consolidated financial
statements from adoption. The standard provided direction for applying consolidation principles to
certain entities that are subject to control on a basis other than ownership of voting interests.
The CICAs guideline on VIEs is similar to US GAAP and is effective in fiscal 2005. We do not
expect its application to have a material impact on our consolidated financial statements. In November 2004, the US accounting standards for inventory were amended, requiring abnormal
amounts of idle facility expense, freight, handling costs and spoilage to be recognized as
current-period charges. The guidance is effective for our 2006 fiscal year, and we are currently
assessing the potential impact, if any, on our consolidated financial statements. In December 2004, US accounting requirements relating to share-based payments were revised. With
limited exceptions, compensation cost will now be measured based on the grant-date fair value of
the equity or liability instruments issued. In addition, liability awards will be remeasured each
reporting period. Compensation cost will be recognized over the period that an employee provides
service in exchange for the award. The new guidance is effective in the third quarter of 2005. We
are currently assessing the potential impact, if any, on our consolidated financial statements. In January 2005, the CICA issued Section 1530, Comprehensive Income, Section 3251, Equity,
Section 3855, Financial Instruments  Recognition and Measurement and Section 3865, Hedges.
Under the new standards: a new location for recognizing certain gains and losses  other
comprehensive income  has been introduced, providing for certain gains and losses arising from
changes in fair value to be temporarily recorded outside the income statement, but in a transparent
manner; existing requirements for hedge accounting are extended; and all financial instruments,
including derivatives, are to be included on a companys balance sheet and measured (in most cases)
at fair value. The guidance will apply for interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2006. Earlier adoption will be permitted only as of
the beginning of a fiscal year. We are currently assessing the potential impact of these new
standards on our consolidated financial statements. For further information, see Notes 2 and 36 to our consolidated financial statements.




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44 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  Risk Management RISK MANAGEMENT  Risk Management  Understanding and managing risk are important parts of PotashCorps strategic planning. In
previous years, we identified and analyzed the risks facing the company, ranked them by likelihood
of occurrence and significance of consequences, and determined the most effective ways to manage
this risk universe. In 2004, we introduced a new
integrated risk-management framework that allowed for a comprehensive
evaluation of the interdependence of the risks across all segments of the company. We reviewed
historical risks, identified new risks and delineated all risks into categories that could
interfere with successful implementation of our strategy. We saw those risk categories as
markets/business, distribution, operational, financial/information technology, regulatory and
integrity/empowerment. Together and separately, these risks affect our ability to take advantage of
opportunities. The greatest consequence of all risks is a loss of reputation, for it can threaten
our earnings, access to capital or our brand by creating negative opinions of the company in the
minds of employees, customers, investors or our communities. As the risk globe turns, a risk to
reputation affects our ability to execute our strategies. All risks were plotted on a matrix which recognized that the inherent risks to the company can be
reduced by lowering either the expected frequency or the consequences. These mitigation activities
result in lower residual risk levels. Management focused on the most significant residual risks to
our strategy, as follows, and reported to the board on plans to manage them. (GLOBAL RISK ENVIRONMENT CHART)
 RISK TO POTASH PRODUCTION As potash is the cornerstone of our success, our ability to bring on our excess capacity in a
timely manner is key to the credibility of our strategy. Higher-than-trend growth rates in the last
three years have absorbed the excess production of our global competitors, putting expectations on
PotashCorp to deliver our excess capacity moving forward. In Saskatchewan, we have increased production at Rocanville, added fourth shifts at Lanigan and
Allan and reduced the number of shutdown weeks taken. In addition, we have the ability to bring on
another 2.9 million tonnes. We could get 1.5 million tonnes from the Lanigan phase I mill, 400,000
tonnes from debottlenecking at Allan and another 1 million tonnes, total, at Cory and Patience
Lake. All these projects can be brought on stream within three years at a current estimate of $300
million. At New Brunswick we are exploring a potential adjacent deposit that could be developed. NEW SUPPLY CREATES STRUCTURAL MARKET IMBALANCE An increase in competitive supply in potash or nitrogen that outpaced the growth in world
consumption could upset the supply/demand balance of those nutrients and depress prices for a
prolonged period. We partially mitigate the risk in potash by ensuring additional supply is available from our excess
capacity only as required by the market. In nitrogen, capacity growth has generally matched
consumption, but abundant low-cost natural gas has encouraged many developing countries to exploit
their gas by producing ammonia for the US market. Closure of high-cost US facilities has cushioned
the effect of these imports and is expected to continue to do so. Our nutrient diversity mitigates
this risk through strong potash profits and specialty phosphate sales. We are examining nitrogen
expansions in lower-cost gas regions which would have a low capital investment and stable returns,
consistent with our asset-light/fee-heavy strategy. RISK OF CYCLICALITY The risk of short-term cyclicality in product prices is most significant in phosphate and nitrogen. Competitive costs, availability of supply and world demand affect short-term nitrogen and phosphate
pricing. This results in supply/demand imbalances, pressure on prices and margins, unprofitable
operations and, eventually, shutdown costs. To help mitigate this cyclicality in phosphate, we work through PhosChem to export excess DAP, MAP
and phosphoric acid so our plants operate at cost-effective utilization rates. We continue to
diversify our products by growing offshore feed sales and expanding




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45 POTASHCORP 2004 ANNUAL REPORT  |  MD&A   Risk Management RISK MANAGEMENT   purified acid production. In nitrogen, we target markets offering price premiums and grow our
more stable industrial markets, including those requiring a physical link to our plant or
specialized manufacturing. We are expanding our low-cost Trinidad production and have indefinitely
shut down our Memphis facility and production of ammonia and nitrogen solutions at Geismar. We
continue to hedge a portion of our US gas costs. SUPPRESSED DEMAND CREATES STRUCTURAL MARKET IMBALANCE A risk to our potash business would arise if growth in demand fell below expectations, reducing
world trade and affecting our sales volumes and price realizations. This risk is mitigated by our
long-held strategy of matching supply to demand. We see a fall in global consumption as less likely
than a softening in demand that results in negligible growth. POLITICAL RISK PotashCorps board has approved strategic acquisition of interests in other low-cost potash
producers with logistical advantages to offshore markets. The goal is to achieve sustained returns
without threat of forced divestiture, political violence, selective discrimination or
inconvertibility of funds. Outside of Canada, viable low-cost production is in areas which have
elements of political risk. A diversity of sources mitigates this risk. Interruptions in business elsewhere allow us to produce
more in Canada. Political risk insurance is expensive, but we try to ensure that companies we
invest in carry business interruption insurance. RAILCAR SHORTAGES A shortage of railcars for carrying potash and increased transit time in North America would result
in customer dissatisfaction, loss of sales and higher equipment costs. Strong demand for grain and
other exports affects railcar availability. We seek to manage these risks through timely and accurate forecasting to the railroads, balanced
shipping patterns and by adding domestic storage capacity that reduces seasonal shipping. We
continue to increase our private fleet of hopper cars and to work closely with Canadian National
and Canadian Pacific railroads. OCEAN FREIGHT VOLATILITY A strong world economy is fueling higher dry bulk freight rates. The shortage of bulk ships
reflects the rise in exports encouraged by a weaker US dollar, resurgent North American grain
exports, Chinas demand for bulk commodities and the long lead time required to build new ships. As
a result, vessel utilization is at an all-time high.
 The consequences for PotashCorp are higher distribution costs, reduced price realizations and
delayed or missed shipments. We seek to mitigate this through long-term charters, joint ventures, vessel pools and contracts of
affreightment. We are proactive in the ocean freight market to minimize cost fluctuations and
coordinate potash shipments with other products to obtain more favorable freight economics. SECURITY RISKS Such risks include a deliberate, malicious act involving product or facilities that may expose
employees, contractors or the public to extensive injury, cause property damage or affect the
companys reputation. Theft of product for use in criminal acts or terrorism is included. We seek to mitigate this risk by maintaining strict controls, standards and operating procedures,
while increasing security and intrusion measures. We introduced a proof-of-delivery process and
adopted stricter identification requirements, and we cooperate with the US Department of Transportation program to
upgrade ammonia railcars. RISK TO REPUTATION Its reputation should be a companys most valuable corporate asset, loss of that reputation its
greatest risk. In any of the circumstances outlined, PotashCorps reputation could be damaged.
Diminished investor confidence can make raising capital difficult. Poor community relations can
result in loss of license to operate or public boycott of products. Lack of customer confidence can
result in irreversible loss of market share. Employee apathy makes recruitment and retention of the
best people difficult. Negligence claims could be laid against officers and directors. We mitigate risk to our reputation by building goodwill, using best practices, ensuring
transparency and communicating with stakeholders. Our commitment to sustainability helps reduce
environmental and social risks, which could affect economic performance. We regularly survey all
our key stakeholder groups to ensure we are enhancing our brand and reducing any concerns they have
about our business. We maintain good relations with customers by focusing on service and our
customer complaint system. We encourage our employees to be engaged with the company by fostering a
culture of fair treatment and providing training and opportunities for development. We aim for
leading-edge corporate governance and have timely and complete disclosure. We have a code of
conduct and a crisis communications program, and introduced Fertile Minds to inform the public
about the science of fertilizer. With all stakeholders, we strive to have no surprises to support
our good reputation, which is key to achieving our strategies.




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46 POTASHCORP 2004 ANNUAL REPORT  |  MD&A   2005 Outlook OUTLOOK  2005 Outlook  ECONOMY: The global economic outlook remains very optimistic. Factors affecting world economic
growth include US interest rates, Chinas foreign exchange policy and global inflation. The IMF
forecast for 4.3-percent growth for 2005 compares with 5 percent in 2004, the highest in nearly 30
years. This is projected to support expenditures on fertilizer and industrial products based on N,
P & K. AGRICULTURE: The outlook for agriculture is highly favorable. Demand for grain is expected to
continue to expand. Several commodity prices, including those for rubber, tea, rice, coffee and
sugar, have improved. Grain stocks are historically low and a second consecutive year of the ideal
growing conditions that produced record crops in 2004 is unlikely. The USDA recently estimated that
at the end of the current crop year, there will be only 2.3 months worth of grain in world bins.
China is expected to look again to the US and Brazil to make up its shortfall in grain and oilseed
production, driving agricultural output in those countries. (CHINA'S GRAIN PRODUCTION AND CONSUMPTION BAR CHART) After harvesting the best crop in years in 2004, the worlds farmers have an improved financial
position entering 2005. This will support increased fertilizer consumption to replace nutrients
drawn from the soil by the large crop, and help farmers achieve their production goals. World nutrient consumption is expected to rise by 3 to 4 percent in 2005, with projected US
nutrient use up by 1 to 2 percent. OCEAN FREIGHT RATES: Record ocean freight rates were established in February 2004 and subsequently
topped in December. The market is
 expected to decline in 2005 from the December highs, with
moderation of Chinas industry boom and more new bulk vessels providing a moderate decrease in
global fleet utilization. However, average ocean freight rates are expected to remain historically
high in 2005. NATURAL GAS: Futures price projections for US natural gas over the period 2005-2008 are in the
range of $5.00 to $7.00 per MMBtu. Barring a major find, future drilling will be into smaller
potential gas pools which are expected to provide a lower average success rate and a shorter
production life. These factors are increasing the cost of bringing natural gas to the marketplace
and are expected to put a floor under NYMEX futures prices. NITROGEN: Tight supply/demand is expected to continue through 2005, as historically high US gas
prices will likely keep some North American production shuttered. We are proceeding with capacity
additions at our Trinidad operation, based on long-term, lower-cost natural gas contracts. This
should increase output capability by 15 percent by mid-2006. We will continue to evaluate our plant
shutdowns at Geismar and Memphis, basing any potential restart decisions on a combination of market
conditions and the right balance of prices versus volumes. Approximately 60 percent
of our 2005 gas needs are hedged through our indexed gas contracts in
Trinidad. For our US gas needs, the hedge gain in 2005 is currently
expected to approximate 2004 levels. However, the ultimate gain is
difficult to predict as the nitrogen market and gas prices are highly
volatile. PHOSPHATE: The supply/demand balance tightened in late 2004 as a series of hurricanes forced
production outages in Florida. However, the phosphate industry continues to face issues of
oversupply. China and India, large potential markets for US phosphate exports, are expected to continue to
support their domestic industries in 2005. New DAP capacity is expected to exceed demand growth in
the next six years, with the result that US DAP exports will continue near current levels or
decline slightly. High input costs are expected to continue. US natural gas prices should provide a floor price for
ammonia, and sulfur prices are projected to remain high due to Chinas increasing need for sulfur
to grow its domestic phosphate production. A $33-per-tonne price increase for feed products and the expected resolution of our DFP operating
problems at Aurora should improve our feed margins. The outlook for industrial phosphate remains
positive, especially for purified acid which we are expanding.




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47 POTASHCORP 2004 ANNUAL REPORT  |  MD&A   2005 Outlook OUTLOOK   POTASH: The outlook for potash is bright. World demand is expected to continue to trend upward
in 2005, following three years of spectacular growth totalling more than 20 percent. Soil nutrients
depleted by the record crops of 2004 must be replaced. Canpotex is forecasting another record in 2005, with the expectation of 8.7 million tonnes in sales
as China and other nations in Southeast Asia continue to increase consumption. Sinochem, a
purchasing agent for China, signed a 2005 contract with Canpotex for a minimum 17-percent increase
in volumes with a $40-per-tonne increase in price. Since China purchases its own freight, this
increase in price will directly impact our realized prices. In North America, our company expects to maintain the growth we achieved in 2004 market share as
other competitors operate at capacity. Price increases announced in 2004 should be fully realized
during the second quarter of 2005. Global producers other than PotashCorp ended 2004 with little remaining excess capacity. Some
debottlenecking projects have been announced to increase future output, but most producers have
already exhausted such opportunities. PotashCorp is doing engineering studies to define the work
required to bring excess capacity into production, and to establish priorities for proceeding at
our different production locations. As required by the marketplace, we will operate the fourth
production shifts at Lanigan and Allan and the 2005 Rocanville expansion. (NEW DAP CAPACITY VS DEMAND BAR CHART)
 POTASHCORP FINANCIAL OUTLOOK Capital expenditures are expected to approximate $350.0 million, of which approximately $125.0
million will be for sustaining capital. Total expenditures are up from the $220.5 million in 2004,
primarily due to opportunity capital set aside for ramping up potash production and the expansions
of purified acid at Aurora and ammonia at Trinidad. Selling and administrative expenses are expected to be similar to 2004 levels while other income
should exceed 2004, excluding the impact of the gain on sale of SQM shares. The increase is
expected to result from higher equity earnings from our potash investments in SQM and APC and
dividends from ICL. The effective consolidated tax rate is expected to remain at approximately 33 percent, with 90
percent expected to be current and 10 percent future. Provincial mining and other taxes should
continue to approximate 21 percent of total potash gross margin. Given the positive industry fundamentals, we anticipate another record year in 2005 and expect net
income to be in the range of $400 million to $485 million
or $3.50 to $4.25 per diluted share, assuming a flat
Canadian dollar from the end of 2004 at 1.20. Capital expenditures of approximately $350 million
will exceed our expected non-cash charges of $250 million, which primarily consist of depreciation
and amortization. (POTASH DEMAND GROWTH BAR CHART)




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48 POTASHCORP 2004 ANNUAL
REPORT  | MD&A  Quarterly Data FOURTH
QUARTER 2004 Quarterly
Results and Review of Fourth-Quarter Performance
(in millions of US
dollars except per-share amounts) 2004
    
    
    2003Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Total
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales
    
    
    728.4
    
    
    
    833.7
    
    
    
    815.7
    
    
    
    866.6
    
    
    
    3,244.4
    
    
    
    661.8
    
    
    
    745.0
    
    
    
    674.6
    
    
    
    717.6
    
    
    
    2,799.0Gross margin
    
    
    124.0
    
    
    
    170.7
    
    
    
    189.4
    
    
    
    197.3
    
    
    
    681.4
    
    
    
    81.1
    
    
    
    122.3
    
    
    
    84.5
    
    
    
    92.5
    
    
    
    380.4Operating income (loss)
    
    
    97.8
    
    
    
    129.2
    
    
    
    133.1
    
    
    
    154.2
    
    
    
    514.3
    
    
    
    24.7
    
    
    
    73.1
    
    
    
    (210.9
    )
    
    
    57.5
    
    
    
    (55.6
    )Net income (loss)
    
    
    50.7
    
    
    
    72.6
    
    
    
    75.2
    
    
    
    100.1
    
    
    
    298.6
    
    
    
    3.2
    
    
    
    29.9
    
    
    
    (185.9
    )
    
    
    26.5
    
    
    
    (126.3
    )Net income (loss) per diluted share
    
    
    0.47
    
    
    
    0.67
    
    
    
    0.68
    
    
    
    0.88
    
    
    
    2.70
    
    
    
    0.03
    
    
    
    0.29
    
    
    
    (1.78
    )
    
    
    0.25
    
    
    
    (1.21
    )Potash gross margin
    
    
    66.7
    
    
    
    121.4
    
    
    
    120.8
    
    
    
    113.9
    
    
    
    422.8
    
    
    
    49.3
    
    
    
    60.7
    
    
    
    52.3
    
    
    
    41.4
    
    
    
    203.7Phosphate gross margin
    
    
    (0.9
    )
    
    
    5.7
    
    
    
    0.6
    
    
    
    10.4
    
    
    
    15.8
    
    
    
    2.0
    
    
    
    (1.0
    )
    
    
    (9.7
    )
    
    
    (7.8
    )
    
    
    (16.5
    )Nitrogen gross margin
    
    
    58.2
    
    
    
    43.6
    
    
    
    68.0
    
    
    
    73.0
    
    
    
    242.8
    
    
    
    29.8
    
    
    
    62.6
    
    
    
    41.9
    
    
    
    58.9
    
    
    
    193.2
 
  Our results in each quarter of 2004 were well above the prior year. The most significant
contributing factor to the trend of increasing earnings was tight supply/demand fundamentals
leading to greater volumes, lower costs and better prices in potash. Our 2003 results also reflect
our decision to restructure various operations. Certain aspects of our business can be impacted by seasonal factors. Fertilizers are sold primarily
for spring and fall application in both northern and southern hemispheres. However, planting
conditions and the timing of customer purchases will vary each year and fertilizer sales can be
expected to shift from one quarter to another. Most feed and industrial sales are by contract and
are more evenly distributed throughout the year. Highlights of our 2004 fourth quarter include:  
    Growing world potash consumption led to record sales volumes and a positive pricing environment.
North American and offshore prices were up 33 percent and 52 percent respectively over last
 years fourth quarter, resulting in a 175-percent quarter-over-quarter increase in gross margin.
    Phosphate, led by industrial products, had its best quarter of the year.
    Nitrogen gross margin improved by 24 percent quarter over quarter due to the high price
environment. Our Trinidad operations were responsible for 70 percent of fourth-quarter margin, with
our US operations and hedging programs accounting for the remainder.
    Earnings were negatively affected by the continued appreciation of the Canadian dollar.
    Selling and administrative expenses rose compared to the same quarter of 2003, primarily due to
performance-based compensation accruals.
    We concluded the sale of our shares of PCS Yumbes to SQM and sold certain SQM shares for a
non-taxable gain of $34.4 million.
   (GROSS MARGIN BY QUARTER BAR CHART)
    

(CANADIAN DOLLAR EXCHANGE RATE LINE CHART)




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49 POTASHCORP 2004 ANNUAL REPORT  |  MD&A  11 Year Report 11 YEAR REPORT  11 Year Report
    
    for the years ended December 31 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997(3)
    
    
    1996
    
    
    1995(2)
    
    
    1994(1)Financial Data(in millions of US dollars except share and per-share amounts)SalesPotash
    
    
    1,056.1
    
    
    
    758.7
    
    
    
    669.0
    
    
    
    655.2
    
    
    
    710.3
    
    
    
    688.6
    
    
    
    663.3
    
    
    
    644.0
    
    
    
    521.1
    
    
    
    530.2
    
    
    
    465.1Phosphate
    
    
    977.9
    
    
    
    883.9
    
    
    
    714.0
    
    
    
    732.1
    
    
    
    868.1
    
    
    
    922.3
    
    
    
    1,099.5
    
    
    
    1,036.7
    
    
    
    972.5
    
    
    
    448.8
    
    
    
    Nitrogen
    
    
    1,210.4
    
    
    
    1,156.4
    
    
    
    841.4
    
    
    
    993.5
    
    
    
    964.5
    
    
    
    744.7
    
    
    
    844.2
    
    
    
    939.3
    
    
    
    111.3
    
    
    
    23.8
    
    
    
    Total sales
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.0
    
    
    
    1,604.9
    
    
    
    1,002.8
    
    
    
    465.1Gross marginPotash
    
    
    422.8
    
    
    
    203.7
    
    
    
    218.0
    
    
    
    248.1
    
    
    
    307.4
    
    
    
    304.2
    
    
    
    319.2
    
    
    
    261.4
    
    
    
    193.0
    
    
    
    217.9
    
    
    
    161.2Phosphate
    
    
    15.8
    
    
    
    (16.5
    )
    
    
    41.9
    
    
    
    64.5
    
    
    
    76.8
    
    
    
    130.5
    
    
    
    230.1
    
    
    
    196.6
    
    
    
    196.2
    
    
    
    87.1
    
    
    
    Nitrogen
    
    
    242.8
    
    
    
    193.2
    
    
    
    47.4
    
    
    
    94.7
    
    
    
    104.7
    
    
    
    (21.4
    )
    
    
    64.8
    
    
    
    133.0
    
    
    
    2.1
    
    
    
    2.3
    
    
    
    Total gross margin
    
    
    681.4
    
    
    
    380.4
    
    
    
    307.3
    
    
    
    407.3
    
    
    
    488.9
    
    
    
    413.3
    
    
    
    614.1
    
    
    
    591.0
    
    
    
    391.3
    
    
    
    307.3
    
    
    
    161.2Depreciation and amortizationPotash
    
    
    66.4
    
    
    
    52.4
    
    
    
    46.3
    
    
    
    34.1
    
    
    
    40.9
    
    
    
    37.2
    
    
    
    36.2
    
    
    
    39.6
    
    
    
    38.5
    
    
    
    42.1
    
    
    
    39.3Phosphate
    
    
    84.4
    
    
    
    75.7
    
    
    
    76.8
    
    
    
    72.0
    
    
    
    68.1
    
    
    
    61.8
    
    
    
    59.1
    
    
    
    55.1
    
    
    
    51.6
    
    
    
    28.9
    
    
    
    Nitrogen
    
    
    79.7
    
    
    
    89.6
    
    
    
    88.0
    
    
    
    72.8
    
    
    
    66.1
    
    
    
    83.5
    
    
    
    86.7
    
    
    
    69.0
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    9.5
    
    
    
    9.7
    
    
    
    8.0
    
    
    
    6.8
    
    
    
    11.9
    
    
    
    8.6
    
    
    
    8.9
    
    
    
    6.3
    
    
    
    
    
    
    
    
    
    
    
    Total depreciation and amortization
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1
    
    
    
    71.0
    
    
    
    39.3Operating income (loss)
    
    
    514.3
    
    
    
    (55.6
    )
    
    
    166.9
    
    
    
    269.7
    
    
    
    326.8
    
    
    
    (353.0
    )
    
    
    442.3
    
    
    
    442.0
    
    
    
    297.4
    
    
    
    219.6
    
    
    
    97.5Net income (loss)*(4)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Net income (loss) per share  basic(5)
    
    
    2.77
    
    
    
    (1.21
    )
    
    
    0.52
    
    
    
    1.17
    
    
    
    1.89
    
    
    
    (3.80
    )
    
    
    2.41
    
    
    
    2.84
    
    
    
    2.29
    
    
    
    1.84
    
    
    
    1.06Net income (loss) per share  diluted(5)
    
    
    2.70
    
    
    
    (1.21
    )
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.88
    
    
    
    (3.80
    )
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27
    
    
    
    1.82
    
    
    
    1.06Dividends per share(5)
    
    
    0.55
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.52
    
    
    
    0.53
    
    
    
    0.53
    
    
    
    0.39Cash provided by operating activities
    
    
    649.6
    
    
    
    381.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2
    
    
    
    233.5
    
    
    
    150.7Working capital
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7
    
    
    
    278.8
    
    
    
    136.1
    
    
    
    103.3Total assets
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4
    
    
    
    2,581.8
    
    
    
    1,027.8Long-term debt
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0
    
    
    
    620.0
    
    
    
    714.5
    
    
    
    2.0Shareholders equity
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9
    
    
    
    1,405.5
    
    
    
    1,241.9
    
    
    
    964.3Shares
outstanding at the end
of the year (in 000s)(5)
    
    
    110,631
    
    
    
    106,224
    
    
    
    104,156
    
    
    
    103,904
    
    
    
    103,682
    
    
    
    107,388
    
    
    
    108,488
    
    
    
    107,792
    
    
    
    91,164
    
    
    
    90,880
    
    
    
    85,976Operating Data(thousands)Employees at year-end (actual #)
    
    
    4,906
    
    
    
    4,904
    
    
    
    5,199
    
    
    
    4,997
    
    
    
    5,338
    
    
    
    5,498
    
    
    
    5,744
    
    
    
    5,751
    
    
    
    4,490
    
    
    
    4,579
    
    
    
    1,781Potash production (KCI) tonnage
    
    
    7,914
    
    
    
    7,094
    
    
    
    6,447
    
    
    
    6,128
    
    
    
    7,149
    
    
    
    6,388
    
    
    
    6,995
    
    
    
    6,483
    
    
    
    5,782
    
    
    
    6,071
    
    
    
    5,298Phosphate production (P205) tonnage
    
    
    1,962
    
    
    
    1,861
    
    
    
    1,512
    
    
    
    1,573
    
    
    
    2,042
    
    
    
    2,124
    
    
    
    2,363
    
    
    
    2,282
    
    
    
    2,096
    
    
    
    1,008
    
    
    
    Nitrogen production (N) tonnage
    
    
    2,558
    
    
    
    2,619
    
    
    
    2,990
    
    
    
    3,032
    
    
    
    2,706
    
    
    
    3,138
    
    
    
    3,121
    
    
    
    2,349
    
    
    
    
    
    
    
    
    
    
    
    Potash sales  KCI tonnes
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    6,912
    
    
    
    6,474
    
    
    
    6,283
    
    
    
    6,640
    
    
    
    5,612
    
    
    
    5,848
    
    
    
    5,569Phosphate sales  product tonnes
    
    
    3,793
    
    
    
    3,647
    
    
    
    2,863
    
    
    
    3,045
    
    
    
    3,893
    
    
    
    4,016
    
    
    
    4,627
    
    
    
    4,434
    
    
    
    4,305
    
    
    
    2,206
    
    
    
    Nitrogen sales  product tonnes
    
    
    5,350
    
    
    
    6,080
    
    
    
    6,391
    
    
    
    6,381
    
    
    
    6,760
    
    
    
    6,705
    
    
    
    6,596
    
    
    
    5,851
    
    
    
    535
    
    
    
    115
    
    
    
      (1)
    The consolidated financial statements of the company for 1994 have been restated to US
dollars using the translation of convenience method. The Canadian dollar amounts for this period
have been converted to US dollars at the exchange rate of
US $1.00 = Cdn $1.4028.(2)
    Data for 1995 and thereafter reflect the acquisition of Texasgulf Inc. on April 10, 1995 and the
acquisition of White Springs Agricultural Chemicals, Inc. on October 31, 1995.(3)
    Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6,1997.(4)
    There were no extraordinary items nor were there any discontinued operations in any of the
accounting periods.(5)
    All share and per-share data have been retroactively adjusted to reflect the stock dividend of
one common share for each share owned by shareholders of record at the close of business on August
11, 2004. The stock dividend had the same effect as a two-for-one stock split. The consolidated financial statements of the company have been prepared in accordance with Canadian
generally accepted accounting principles. These principles differ in some respects from those
applicable in the United States. (See Note 36 to the companys consolidated financial statements.)
Certain of the prior years figures have been reclassified to conform with the current years
presentation. Additional Information *
    The after-tax effects of asset impairment, plant shutdown, plant closure and office
consolidation charges and the gain on sale of long-term investments and Moab Inc. are included (as
applicable) in the data for 2004, 2003, 2000 and 1999 in the amounts of $(30.8) million, $203.2
million, $1.5 million and $547.1 million, respectively.




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##### 



50 POTASHCORP 2004 ANNUAL REPORT  |MD&A  Key Earnings Sensitivities / Indicators to Watch / Forward-Looking Statements SENSITIVITIES / INDICATORS / FORWARD-LOOKING STATEMENTS Key Earnings Sensitivities A number of factors affect the earnings of the companys three nutrient segments. The table
below shows the key factors and their approximate effect on EPS based on the assumptions used in
the 2005 earnings guidance of $3.50 to $4.25 per diluted share. Effect
    
    
    
    
    
    
    EffectInput Cost Sensitivities
    
    
    
    on EPS
    
    
    Price and Volume Sensitivities
    
    on EPSNYMEX gas price increases by $1/MMBtu
    
    Nitrogen
    
    + 0.13
    
    
    Price
    
    Potash changes by $5/tonne
    
    ± 0.19Potash
    
     0.04
    
    
    
    
    DAP/MAP changes by $5/tonne
    
    ± 0.05Sulfur changes by $5/long ton
    
    Phosphate
    
    ± 0.06
    
    
    
    
    Ammonia increases by $10/tonne  Nitrogen
    
    + 0.05 Phosphate
    
     0.02Urea changes by $10/tonne
    
    ± 0.08Canadian to US dollar changes by $0.01
    
    Canadian operating expenses
net of provincial taxes
    
    ± 0.02
    
    
    Volume
    
    Potash changes by 100,000 tonnes
    
    ± 0.05Phosphate changes by 50,000 P2O5tonnes
    
    ± 0.04Translation gain/loss
    
    ± 0.02
    
    
    
    
    Nitrogen changes by 50,000 N tonnes
    
    ± 0.04
 The above sensitivities
affect cash flow as well, except the translation gain/loss which is
primarily non-cash. Indicators to Watch in 2005Fertilizer
    
    
    Feed and Industrialo
    
    Weather and global acreage planted
    
    
    o
    
    Health of US and world economieso
    
    Chinas grain stocks and corn exports
    
    
    o
    
    Effect of livestock disease-based restrictions on world tradeo o o o o o o o
    
    US dollar exchange rates with global currencies
Global crop prices
Impact of Asian rust on the soybean market
Ocean freight rates
Prices for natural gas, sulfur and ammonia
Russias energy policy as a condition for its WTO entry
Indias reform of fertilizer subsidy policy
Impact of EU policy on fertilizer imports from Russia
    
    
    o 
 o 
 o
    
    Potential tightening of restrictions on the use of meat and bone meal in animal feeds
Impact of residual grain from ethanol production on US feed phosphate consumption
Consumer spending, housing starts, household improvements and vehicle production and sales
 Forward-Looking Statements  Certain statements in this annual report and this
Managements Discussion & Analysis of Financial
Condition and Results of Operations, including those in
the Outlook section relating to the period after
December 31, 2004, are forward-looking statements subject
to risks and uncertainties. A number of factors
could cause actual results to differ materially from
those expressed in the forward-looking
statements, including, but not limited to: fluctuation in
supply and demand in fertilizer, sulfur, petrochemical and
transportation markets; changes in competitive
pressures, including pricing pressures; risks associated
with natural gas and other hedging activities; changes in
capital markets; changes in currency and exchange
rates; fluctuation in costs of distribution and
transportation; unexpected geological or environmental
conditions; imprecision in
 resource estimates; the outcome of legal proceedings; changes in government policy and
regulation including those with respect to environmental
matters; worldwide political conditions; acquisitions the
company may undertake in the future; and the Fertilizer
and Feed and Industrial Indicators to Watch and other
matters under Risk Management as described previously. The
company sells to a diverse group of customers both by
geography and by end product. Market conditions will vary
on a year-over-year basis and sales can be expected to
shift from one period to another. The company disclaims
any intention or obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise, other than as
required by applicable law.




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##### 



51 POTASHCORP 2004 ANNUAL REPORT   |   MD&A  Appendix APPENDIX Market and Industry Data Some of the market and industry data contained in this annual report and this Managements
Discussion & Analysis of Financial Condition and Results of Operations are based on internal
surveys, market research, independent industry publications or other publicly available
information. Although we believe that the independent sources used by us are reliable, we have not
independently verified and cannot guarantee the accuracy or completeness of this
information. Similarly, we believe our internal research is reliable, but such research has not been
verified by any independent sources. Information in the preparation of this annual report is based on statistical data and other
material available at February 28, 2005. Sources and Glossary of Terms*  SOURCES Page 15 FootnotesFact
    
    
    
    Reference**1
    
    Geographic Availability of
Raw Materials
    
    Source: Fertecon, EIA2
    
    Cost of New Capacity
    
    Source: Fertecon3
    
    Greenfield
    
    Definition: New operation built on
undeveloped site4
    
    Greenfield Development Time
    
    Source: Fertecon5
    
    Producing Countries
    
    Source: Fertecon6
    
    State- or Subsidy-Controlled
Production
    
    Definitions:
    State-controlled: Operational control in
the hands of the state
Subsidy-controlled: The state provides
subsidies which control the economic
viability of the operation7
    
    Industry Operating Rate
    
    Source: Fertecon, PotashCorp8
    
    PotashCorp Capacity
    
    Source: Fertecon, PotashCorp9
    
    PotashCorp World Position
by Capacity
    
    Source: Fertecon, PotashCorpPage 27 FootnotesFact
    
    
    
    Reference10
    
    Total World Demand
    
    Source: Fertecon11
    
    PotashCorp Share of
World Production
    
    Source: Fertecon, PotashCorpFootnotes to the Appendix*
    
    Where PotashCorp is
listed as a source in conjunction with external sources, we
have supplemented the external data with internal analysis.**
    
    Abbreviated Source Name
    
    Complete Source Name and LocationBlue, Johnson
    
    Blue, Johnson & Associates
Albuquerque, NM, USABritish Sulphur
    
    British Sulphur Consultants
London, EnglandCanpotex
    
    Canpotex Limited
Saskatoon, SK, CanadaEIA
    
    Energy Information Administration
Washington, DC, USAFertecon
    
    Fertecon Limited
Tunbridge Wells, Kent, EnglandIFA
    
    International Fertilizer Industry Association
Paris, FranceIMF World Economic Outlook
    
    International Monetary Fund
Washington, DC, USANRCan
    
    Natural Resources Canada
Ottawa, ON, CanadaNYMEX
    
    New York Mercantile Exchange
New York, NY, USAOANDA
    
    OANDA Corporation
New York, NY USA; Toronto, ON CanadaOverseas Marine Services
    
    Overseas Marine Services
New York, NY, USAUSDA
    
    US Department of Agriculture
Washington, DC, USA
 GLOSSARY OF TERMS Canpotex
    
    An export company owned by all Saskatchewan producers
(PotashCorp, Mosaic and Agrium). Sales through Canpotex are
generally allocated pro rata to each producer on the basis of
productive capacity. PotashCorp provides approximately 54%
of Canpotex product.Consumptionvs Demand
    
    End use vs product
purchasedNorth America
    
    The North American market includes Canada and the United States.Offshore
    
    Offshore markets include all markets except Canada and the
United States.PhosChem
    
    An association formed under the Webb-Pomerene Act for
US exports of phosphate fertilizer products. Members are
PotashCorp, Mosaic and Mississippi Phosphates Corporation.
PCS Sales is responsible for export sales of liquid fertilizers for
all PhosChem members while Mosaic is responsible for sales
of solid fertilizers for members.AbbreviatedCompany
    
    Complete CompanyName
    
    Name and CountryAgrium
    
    Agrium Inc. (TSX and
NYSE: AGU), CanadaAPC
    
    Arab Potash Company Ltd.
(Amman: ARPT), JordanAstaris LLC
    
    Astaris LLC, USABASF
    
    BASF Group (Xetra: BAS,
NYSE: BF), USABelaruskali
    
    PA Belaruskali, BelarusCF Industries
    
    CF Industries, Inc., USACNC
    
    Caribbean Nitrogen
Company, TrinidadCVRD
    
    Companhia Vale do Rio
Doce, BrazilDSM
    
    DSM Chemicals North
America Inc. (XAMS: DSMA, NYSE: DSMKY), USAEmaphos
    
    Euro-Maroc-Phosphore,
MoroccoICL
    
    Israel Chemicals Ltd.
(Tel Aviv: CHIM), IsraelInnophos
    
    Innophos, Inc., USAKali & Salz (K&S)
    
    Kali und Salz GmbH
(Xetra: SDF), GermanyKoch
    
    Koch Industries, Inc.,
USAMosaic
    
    The Mosaic Company
(NYSE: MOS), USAOCP
    
    Office Cherifien des
Phosphates, MoroccoPrayon
    
    Societe Chimique
Prayon-Rupel SA, BelgiumRotem
    
    Rotem Amfert Negev
Limited (Tel Aviv: ROTM), IsraelSilvinit
    
    JSC Silvinit, RussiaSQM
    
    Sociedad Quimica y Minera de Chile S.A. (Santiago Bolsa de
Comercio Exchange, NYSE: SQM), ChileTerra
    
    Terra Industries, Inc.
(NYSE: TRA), USATringen
    
    Trinidad Nitrogen Co.,
Limited, TrinidadUralkali
    
    JSC Uralkali, RussiaYara
    
    Yara International (Formerly Hydro Agri and Hydro Gas
and Chemicals) (Oslo: YAR), NorwayScientific TermsNitrogen
    
    HNO3
    
    nitric acid (liquid)UAN
    
    nitrogen solutions, 28-32% N (liquid)Phosphate
    
    P2O5
    
    phosphoric acidMGA
    
    merchant grade acid, 54% P2O5(liquid)DAP
    
    diammonium phosphate, 46% P2O5(solid)MAP
    
    monoammonium phosphate, 52% P2O5(solid)SPA
    
    superphosphoric acid, 70% P2O5(liquid)Potash
    
    KCl
    
    potassium chlorideFertilizer MeasuresP2O5tonne
    
    
    
    Measures the phosphorus content of fertilizers having different
chemical analysesN tonne
    
    
    
    Measures the nitrogen content of fertilizers having different
chemical analysesProduct tonne
    
    
    
    Standard measure of the weights of all types of potash,
phosphate and nitrogen products




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##### 



52 POTASHCORP 2004 ANNUAL
REPORT  | FINANCIAL PERFORMANCE INDICATORS 
 Financial Performance Indicators (in millions of US dollars except share and per-share amounts) 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996
    
    
    1995
    
    
    1994SummaryNet income (loss)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Adjusted net income(1)
    
    
    267.8
    
    
    
    76.9
    
    
    
    53.6
    
    
    
    121.2
    
    
    
    199.5
    
    
    
    135.1
    
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Net income (loss) per diluted share
    
    
    2.70
    
    
    
    (1.21
    )
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.88
    
    
    
    (3.80
    )
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27
    
    
    
    1.82
    
    
    
    1.06Adjusted net income per diluted share(1)
    
    
    2.42
    
    
    
    0.73
    
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.89
    
    
    
    1.23
    
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27
    
    
    
    1.82
    
    
    
    1.06EBITDA(2)
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.5
    
    
    
    290.6
    
    
    
    136.8Adjusted EBITDA(2)
    
    
    723.5
    
    
    
    417.7
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    508.2
    
    
    
    401.8
    
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.5
    
    
    
    290.6
    
    
    
    136.8Cash flow prior to
working capital changes(3)
    
    
    529.6
    
    
    
    364.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3
    
    
    
    321.7
    
    
    
    242.1
    
    
    
    130.9Cash provided by operating activities
    
    
    649.6
    
    
    
    381.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2
    
    
    
    233.5
    
    
    
    150.7Return on assets
    
    
    5.8%
    
    
    
    (2.8%
    )
    
    
    1.1%
    
    
    
    2.6%
    
    
    
    4.8%
    
    
    
    (10.5%
    )
    
    
    5.8%
    
    
    
    6.7%
    
    
    
    8.4%
    
    
    
    6.2%
    
    
    
    8.9%Cash flow return(4)
    
    
    12.4%
    
    
    
    2.6%
    
    
    
    6.7%
    
    
    
    8.1%
    
    
    
    11.0%
    
    
    
    (3.6%
    )
    
    
    12.7%
    
    
    
    12.9%
    
    
    
    12.6%
    
    
    
    13.8%
    
    
    
    10.1%Weighted average cost of capital
    
    
    8.4%
    
    
    
    7.3%
    
    
    
    7.3%
    
    
    
    7.7%
    
    
    
    8.7%
    
    
    
    8.7%
    
    
    
    8.3%
    
    
    
    8.8%
    
    
    
    9.7%
    
    
    
    8.5%
    
    
    
    n/aTotal shareholder return
    
    
    93.4%
    
    
    
    37.5%
    
    
    
    5.2%
    
    
    
    (20.4%
    )
    
    
    64.6%
    
    
    
    (23.0%
    )
    
    
    (21.9%
    )
    
    
    (1.1%
    )
    
    
    21.4%
    
    
    
    111.6%
    
    
    
    35.6%Total debt to capital
    
    
    36.4%
    
    
    
    42.3%
    
    
    
    41.7%
    
    
    
    42.1%
    
    
    
    31.1%
    
    
    
    31.9%
    
    
    
    29.5%
    
    
    
    35.7%
    
    
    
    30.9%
    
    
    
    41.5%
    
    
    
    Net debt to capital(5)
    
    
    27.5%
    
    
    
    42.2%
    
    
    
    41.3%
    
    
    
    41.3%
    
    
    
    28.7%
    
    
    
    30.8%
    
    
    
    28.1%
    
    
    
    35.5%
    
    
    
    30.9%
    
    
    
    40.3%
    
    
    
    Reconciliations and CalculationsNet income (loss)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Provision for plant shutdowns
    
    
    
    
    
    
    123.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for PCS Yumbes
    
    
    3.6
    
    
    
    140.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
provisions for plant closures, office
consolidation and asset impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24.3
    
    
    
    591.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of long-term
investments and Moab Inc.
    
    
    (34.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax effect
    
    
    
    
    
    
    (61.0
    )
    
    
    
    
    
    
    
    
    
    
    (6.5
    )
    
    
    (44.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted net income(1)
    
    
    267.8
    
    
    
    76.9
    
    
    
    53.6
    
    
    
    121.2
    
    
    
    199.5
    
    
    
    135.1
    
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Net income (loss) per diluted share
    
    
    2.70
    
    
    
    (1.21
    )
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.88
    
    
    
    (3.80
    )
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27
    
    
    
    1.82
    
    
    
    1.06After-tax effect per diluted share
for above provisions
    
    
    (0.28
    )
    
    
    1.94
    
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    5.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted net income per diluted share(1)
    
    
    2.42
    
    
    
    0.73
    
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.89
    
    
    
    1.23
    
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27
    
    
    
    1.82
    
    
    
    1.06Net income (loss)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Income taxes
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1
    
    
    
    43.7
    
    
    
    22.9
    
    
    
    3.5Interest expense
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8
    
    
    
    44.7
    
    
    
    37.2
    
    
    
    2.8Depreciation and amortization
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1
    
    
    
    71.0
    
    
    
    39.3EBITDA(2)
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.5
    
    
    
    290.6
    
    
    
    136.8Impairment charges and non-cash
shutdown/closure-related costs,
office consolidation costs and
the gain on sale of long-term
investments and Moab Inc.
    
    
    (30.8
    )
    
    
    245.9
    
    
    
    
    
    
    
    
    
    
    
    (5.6
    )
    
    
    563.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted EBITDA(2)
    
    
    723.5
    
    
    
    417.7
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    508.2
    
    
    
    401.8
    
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.5
    
    
    
    290.6
    
    
    
    136.8Cash flow prior to
working capital changes(3)
    
    
    529.6
    
    
    
    364.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3
    
    
    
    321.7
    
    
    
    242.1
    
    
    
    130.9Accounts receivable
    
    
    (51.9
    )
    
    
    (39.5
    )
    
    
    (11.1
    )
    
    
    69.9
    
    
    
    (52.2
    )
    
    
    33.8
    
    
    
    48.8
    
    
    
    23.5
    
    
    
    (7.4
    )
    
    
    (48.8
    )
    
    
    (14.4
    )Inventories
    
    
    (10.5
    )
    
    
    11.8
    
    
    
    (18.2
    )
    
    
    (76.1
    )
    
    
    (27.4
    )
    
    
    (16.1
    )
    
    
    (7.9
    )
    
    
    19.9
    
    
    
    2.5
    
    
    
    9.3
    
    
    
    14.6Prepaid expenses and other
current assets
    
    
    (6.3
    )
    
    
    11.4
    
    
    
    (3.9
    )
    
    
    2.3
    
    
    
    (3.1
    )
    
    
    3.2
    
    
    
    (16.6
    )
    
    
    3.7
    
    
    
    (1.9
    )
    
    
    2.5
    
    
    
    0.5Accounts payable and accrued charges
    
    
    102.2
    
    
    
    51.6
    
    
    
    37.0
    
    
    
    (244.6
    )
    
    
    137.4
    
    
    
    (5.0
    )
    
    
    1.3
    
    
    
    (72.0
    )
    
    
    0.5
    
    
    
    1.8
    
    
    
    Current income taxes
    
    
    86.5
    
    
    
    (18.3
    )
    
    
    23.4
    
    
    
    (21.6
    )
    
    
    20.6
    
    
    
    8.1
    
    
    
    (3.8
    )
    
    
    3.4
    
    
    
    (19.2
    )
    
    
    26.6
    
    
    
    19.1Changes in non-cash operating
working capital
    
    
    120.0
    
    
    
    17.0
    
    
    
    27.2
    
    
    
    (270.1
    )
    
    
    75.3
    
    
    
    24.0
    
    
    
    21.8
    
    
    
    (21.5
    )
    
    
    (25.5
    )
    
    
    (8.6
    )
    
    
    19.8Cash provided by operating activities
    
    
    649.6
    
    
    
    381.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2
    
    
    
    233.5
    
    
    
    150.7Net income (loss)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Total assets
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4
    
    
    
    2,581.8
    
    
    
    1,027.8Return on assets
    
    
    5.8%
    
    
    
    (2.8%
    )
    
    
    1.1%
    
    
    
    2.6%
    
    
    
    4.8%
    
    
    
    (10.5%
    )
    
    
    5.8%
    
    
    
    6.7%
    
    
    
    8.4%
    
    
    
    6.2%
    
    
    
    8.9%




---



##### 



53 POTASHCORP 2004 ANNUAL REPORT  |  FINANCIAL PERFORMANCE INDICATORS Financial Performance Indicators (in millions of US dollars except share and per-share amounts) Reconciliations and Calculations (continued) 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996
    
    
    1995
    
    
    1994Net income (loss)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5
    
    
    
    91.2Income taxes
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1
    
    
    
    43.7
    
    
    
    22.9
    
    
    
    3.5Interest expense
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8
    
    
    
    44.7
    
    
    
    37.2
    
    
    
    2.8Cash taxes paid
    
    
    (33.5
    )
    
    
    (22.8
    )
    
    
    (4.4
    )
    
    
    (41.5
    )
    
    
    (13.4
    )
    
    
    (5.8
    )
    
    
    (19.2
    )
    
    
    (41.3
    )
    
    
    (32.9
    )
    
    
    (6.2
    )
    
    
    (1.2
    )Depreciation and amortization
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1
    
    
    
    71.0
    
    
    
    39.3Cash flow(4)
    
    
    720.8
    
    
    
    149.0
    
    
    
    381.6
    
    
    
    413.9
    
    
    
    500.4
    
    
    
    (167.7
    )
    
    
    614.0
    
    
    
    570.7
    
    
    
    354.6
    
    
    
    284.4
    
    
    
    135.6Total assets
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4
    
    
    
    2,581.8
    
    
    
    1,027.8Cash and cash equivalents
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    
    
    
    
    (40.5
    )
    
    
    (16.6
    )Accumulated depreciation of
property, plant and equipment
    
    
    1,754.9
    
    
    
    1,576.2
    
    
    
    1,454.7
    
    
    
    1,274.3
    
    
    
    1,111.8
    
    
    
    951.0
    
    
    
    812.4
    
    
    
    662.0
    
    
    
    528.7
    
    
    
    454.1
    
    
    
    388.4Accumulated amortization of goodwill
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    4.3
    
    
    
    1.4
    
    
    
    27.4
    
    
    
    12.7
    
    
    
    0.3
    
    
    
    
    
    
    
    Accounts payable and accrued charges
    
    
    (599.9
    )
    
    
    (380.3
    )
    
    
    (347.0
    )
    
    
    (271.4
    )
    
    
    (525.9
    )
    
    
    (349.1
    )
    
    
    (349.7
    )
    
    
    (348.1
    )
    
    
    (180.0
    )
    
    
    (199.2
    )
    
    
    (60.9
    )Adjusted assets
    
    
    5,830.2
    
    
    
    5,765.8
    
    
    
    5,776.1
    
    
    
    5,562.2
    
    
    
    4,635.9
    
    
    
    4,476.1
    
    
    
    4,956.4
    
    
    
    4,745.4
    
    
    
    2,843.4
    
    
    
    2,796.2
    
    
    
    1,338.7Average adjusted assets
    
    
    5,798.0
    
    
    
    5,771.0
    
    
    
    5,669.2
    
    
    
    5,099.1
    
    
    
    4,556.0
    
    
    
    4,716.3
    
    
    
    4,850.9
    
    
    
    4,432.2
    
    
    
    2,819.8
    
    
    
    2,067.5
    
    
    
    1,348.2Cash flow return(4)
    
    
    12.4%
    
    
    
    2.6%
    
    
    
    6.7%
    
    
    
    8.1%
    
    
    
    11.0%
    
    
    
    (3.6%
    )
    
    
    12.7%
    
    
    
    12.9%
    
    
    
    12.6%
    
    
    
    13.8%
    
    
    
    10.1%Weighted average cost of capital
    
    
    8.4%
    
    
    
    7.3%
    
    
    
    7.3%
    
    
    
    7.7%
    
    
    
    8.7%
    
    
    
    8.7%
    
    
    
    8.3%
    
    
    
    8.8%
    
    
    
    9.7%
    
    
    
    8.5%
    
    
    
    n/aEnd of year closing price (dollars)
    
    
    83.06
    
    
    
    43.24
    
    
    
    31.80
    
    
    
    30.69
    
    
    
    39.16
    
    
    
    24.10
    
    
    
    31.94
    
    
    
    41.50
    
    
    
    42.50
    
    
    
    35.44
    
    
    
    17.00Beginning of year opening price (dollars)
    
    
    43.24
    
    
    
    31.80
    
    
    
    30.69
    
    
    
    39.16
    
    
    
    24.10
    
    
    
    31.94
    
    
    
    41.50
    
    
    
    42.50
    
    
    
    35.44
    
    
    
    17.00
    
    
    
    12.82Change in share price (dollars)
    
    
    39.82
    
    
    
    11.44
    
    
    
    1.11
    
    
    
    (8.47
    )
    
    
    15.06
    
    
    
    (7.84
    )
    
    
    (9.56
    )
    
    
    (1.00
    )
    
    
    7.06
    
    
    
    18.44
    
    
    
    4.18Dividends per share (dollars)
    
    
    0.55
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.52
    
    
    
    0.53
    
    
    
    0.53
    
    
    
    0.39Total shareholder return
    
    
    93.4%
    
    
    
    37.5%
    
    
    
    5.2%
    
    
    
    (20.4%
    )
    
    
    64.6%
    
    
    
    (23.0%
    )
    
    
    (21.9%
    )
    
    
    (1.1%
    )
    
    
    21.4%
    
    
    
    111.6%
    
    
    
    35.6%Short-term debt
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9
    
    
    
    6.3
    
    
    
    
    
    
    
    Current portion of long-term debt
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7
    
    
    
    1.8
    
    
    
    165.9
    
    
    
    0.6Long-term debt
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0
    
    
    
    620.0
    
    
    
    714.5
    
    
    
    2.0Total debt
    
    
    1,362.4
    
    
    
    1,446.1
    
    
    
    1,496.3
    
    
    
    1,514.8
    
    
    
    908.2
    
    
    
    918.9
    
    
    
    1,028.6
    
    
    
    1,234.6
    
    
    
    628.1
    
    
    
    880.4
    
    
    
    2.6Cash and cash equivalents
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    
    
    
    
    (40.5
    )
    
    
    (16.6
    )Net debt(5)
    
    
    903.5
    
    
    
    1,441.4
    
    
    
    1,471.8
    
    
    
    1,469.5
    
    
    
    808.2
    
    
    
    874.9
    
    
    
    960.6
    
    
    
    1,225.8
    
    
    
    628.1
    
    
    
    839.9
    
    
    
    (14.0
    )Shareholders equity
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9
    
    
    
    1,405.5
    
    
    
    1,241.9
    
    
    
    964.3Total debt to capital
    
    
    36.4%
    
    
    
    42.3%
    
    
    
    41.7%
    
    
    
    42.1%
    
    
    
    31.1%
    
    
    
    31.9%
    
    
    
    29.5%
    
    
    
    35.7%
    
    
    
    30.9%
    
    
    
    41.5%
    
    
    
    Net debt to capital (5)
    
    
    27.5%
    
    
    
    42.2%
    
    
    
    41.3%
    
    
    
    41.3%
    
    
    
    28.7%
    
    
    
    30.8%
    
    
    
    28.1%
    
    
    
    35.5%
    
    
    
    30.9%
    
    
    
    40.3%
    
    
    
    Current assets
    
    
    1,243.6
    
    
    
    733.9
    
    
    
    832.0
    
    
    
    819.6
    
    
    
    871.7
    
    
    
    726.2
    
    
    
    774.2
    
    
    
    734.5
    
    
    
    467.0
    
    
    
    501.1
    
    
    
    164.7Current liabilities
    
    
    (703.7
    )
    
    
    (557.8
    )
    
    
    (823.4
    )
    
    
    (772.5
    )
    
    
    (1,020.4
    )
    
    
    (831.0
    )
    
    
    (445.0
    )
    
    
    (452.8
    )
    
    
    (188.2
    )
    
    
    (365.0
    )
    
    
    (61.4
    )Working capital
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7
    
    
    
    278.8
    
    
    
    136.1
    
    
    
    103.3Cash and cash equivalents
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    
    
    
    
    (40.5
    )
    
    
    (16.6
    )Short-term debt
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9
    
    
    
    6.3
    
    
    
    
    
    
    
    Current portion of long-term debt
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7
    
    
    
    1.8
    
    
    
    165.9
    
    
    
    0.6Non-cash operating working capital
    
    
    184.8
    
    
    
    348.9
    
    
    
    460.5
    
    
    
    502.9
    
    
    
    245.8
    
    
    
    333.1
    
    
    
    356.5
    
    
    
    377.5
    
    
    
    286.9
    
    
    
    261.5
    
    
    
    87.3Sales
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.0
    
    
    
    1,604.9
    
    
    
    1,002.8
    
    
    
    465.1Freight
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2
    
    
    
    216.7
    
    
    
    222.1
    
    
    
    212.5
    
    
    
    216.5
    
    
    
    226.6
    
    
    
    144.6
    
    
    
    92.8
    
    
    
    85.2Transportation and distribution
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5
    
    
    
    83.3
    
    
    
    83.1
    
    
    
    77.0
    
    
    
    77.9
    
    
    
    61.7
    
    
    
    49.1
    
    
    
    53.5
    
    
    
    14.8Net sales(6)
    
    
    2,901.4
    
    
    
    2,465.8
    
    
    
    1,928.7
    
    
    
    2,080.8
    
    
    
    2,237.7
    
    
    
    2,066.1
    
    
    
    2,312.6
    
    
    
    2,331.7
    
    
    
    1,411.2
    
    
    
    856.5
    
    
    
    365.1Weighted average shares outstandingBasic (in 000s)
    
    
    107,967
    
    
    
    104,460
    
    
    
    104,042
    
    
    
    103,758
    
    
    
    104,820
    
    
    
    108,460
    
    
    
    108,354
    
    
    
    104,550
    
    
    
    91,074
    
    
    
    86,704
    
    
    
    85,744Diluted (in 000s)
    
    
    110,739
    
    
    
    104,460
    
    
    
    104,632
    
    
    
    104,372
    
    
    
    105,406
    
    
    
    108,460
    
    
    
    109,003
    
    
    
    105,642
    
    
    
    92,119
    
    
    
    87,729
    
    
    
    86,305
 All share and per-share data have been retroactively adjusted to reflect the stock dividend of one
common share for each share owned by shareholders of record at the
close of business on August 11, 2004. The stock dividend had the
same effect as a two-for-one stock split.
n/a  not availableCertain of the prior years figures have been reclassified to conform with the current years
presentation.




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##### 



54 POTASHCORP 2004 ANNUAL REPORT  |  FINANCIAL PERFORMANCE INDICATORS Financial
Performance Indicators  (in millions of US dollars except share and per-share amounts)
Non-GAAP Financial Measures and Footnotes to Reconciliations and Calculations  The following information is included for
convenience only. Generally, a non-GAAP financial measure
is a numerical measure of a companys
performance, financial position or cash flows that either
excludes or includes amounts that are not normally
excluded or included in the most directly comparable
measure calculated and presented in accordance with
generally accepted accounting principles (GAAP).
Adjusted net income, adjusted net income per diluted
share, EBITDA, adjusted EBITDA, cash flow prior to working
capital changes, cash flow, cash flow return, net debt, net
debt to capital and consolidated net sales are not
measures of financial performance (nor do they have
standardized meanings) under either Canadian GAAP or US
GAAP. In evaluating these measures, investors should
consider that the methodology applied in calculating
such measures may differ among companies and analysts. The company uses both GAAP and certain non-GAAP measures
to assess performance. The companys management believes
these non-GAAP measures provide useful supplemental
information to investors in order that they may evaluate
PotashCorps financial performance using the same
measures as management. PotashCorps management believes
that, as a result, the investor is afforded greater
transparency in assessing the financial performance of
the company. These non-GAAP financial measures should not
be considered as a substitute for, nor superior
to, measures of financial performance prepared in
accordance with GAAP.  (1)
    The companys management uses net income (loss)
adjusted to exclude impairment charges and
shutdown/closure-related costs, office consolidation costs
and the gain on sale of long-term investments and Moab
Inc., and diluted net income per share excluding such
items as supplemental financial measures. These measures
are used to evaluate PotashCorps operating performance
and to compare such performance with the companys
historical operating results and the operating results of
other companies. The companys management believes that
these measures allow management to consider the ongoing
financial performance of the company with respect to
short-term patterns and long-term trends without the
potentially obscuring effects of the above-noted items.As compared to net income (loss) according to
GAAP, these measures are limited by the exclusion of
items that have been identified by the companys
impairment, shutdown and other analyses. PotashCorps
management compensates for these limitations by
applying the specific
recognition, measurement, presentation and disclosure
provisions for such items as required under
GAAP. Management also evaluates such charges, costs and
gains through other financial measures such as cash
flow provided by operating activities.For periods in which there was a net loss applicable
to common shareholders, any outstanding stock options
to purchase the companys common shares with
underlying exercise prices less than the average
market prices were excluded from the calculation of
diluted net loss per share, as inclusion of these
securities would have been anti-dilutive to the net
loss per share.The weighted average number of shares used for
calculating adjusted net income in 2004, 2003, 2000 and
1999 was 110,739,000, 105,266,000, 105,406,000 and 109,954,000, respectively.(2)
    PotashCorp uses EBITDA and adjusted EBITDA as
supplemental financial measures of its operational
performance. Management believes EBITDA and adjusted
EBITDA to be important measures as they exclude the
effects of items which primarily reflect the impact of
long-term investment decisions, rather than the
performance of the companys day-to-day operations. As
compared to net income (loss) according to GAAP, these measures are limited in that
they do not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating revenues in the companys
business, or the non-cash charges associated with
impairments and shutdown-related costs, or gain on sale of
long-term investments. Management evaluates such items
through other financial measures such as capital
expenditures and cash flow provided by operating
activities. The company believes that these measurements
are useful to measure a companys ability to service debt
and to meet other payment obligations or as a valuation
measurement.(3)
    Cash flow prior to working capital changes is defined as the cash provided by
operating activities, exclusive of changes in non-cash operating working capital.
PotashCorp uses cash flow prior to working capital changes as a supplemental
financial measure in its evaluation of liquidity. Management believes that adjusting
principally for the swings in non-cash working capital items due to seasonality
assists management in making long-term liquidity assessments. The company
also believes that this measurement is useful as a measure of liquidity or as a
valuation measurement.(4)
    PotashCorp uses cash flow and cash flow return as
supplemental measures to evaluate the performance of
the companys assets in terms of the cash flow they
 have generated. Calculated on the total cost basis of the
companys assets rather than on the depreciated
value, these measures reflect cash returned on the
total investment outlay. The company believes these
measures are one of the best predictors of shareholder
value. As such, management believes this information to
be useful to investors.(5)
    Management believes that net debt and net debt to
capital ratio are useful to investors because they are
helpful in determining the companys leverage. It also
believes that since the company has the ability to and
may elect to use a portion of cash and cash equivalents
to retire debt or to incur additional expenditures
without increasing debt, it is appropriate to apply cash
and cash equivalents to debt in calculating net debt and
net debt to capital. PotashCorp believes that this
measurement is useful as a financial leverage measure.(6)
    Management includes net sales in its segment
disclosures in the consolidated financial statements
pursuant to Canadian GAAP, which requires segmentation
based upon the companys internal organization and
reporting of revenue and profit measures derived from
internal accounting methods. Net sales (and related
per-tonne amounts and other ratios) are primary revenue
measures it uses and reviews in making decisions about
operating matters on a business segment basis. These decisions include assessments about
potash, phosphate and nitrogen performance and the
resources to be allocated to these segments. It also
uses net sales (and related per-tonne amounts and
other ratios) for business segment planning and
monthly forecasting. Net sales are calculated as sales
revenues less freight, transportation and distribution
expenses. Net sales presented on a consolidated basis
rather than by business segment is considered a
non-GAAP financial measure. Financial Terms Total shareholder return= (change in market price per common share + dividends per share) / beginning market price per common share Debt to capital= total debt / (total debt + total shareholders equity) Net debt to capital= (total debt  cash and cash equivalents) / (total debt  cash and cash equivalents + total shareholders equity) Cash flow= net income or loss + income taxes + interest  cash taxes paid + depreciation and amortization Cash flow return= cash flow / average (total assets  cash and cash equivalents + accumulated depreciation and amortization  accounts payable and accrued charges) EBITDA= earnings (net
income or loss) before interest, taxes, depreciation and amortization Adjusted EBITDA= EBITDA + impairment charges +
non-cash shutdown / closure-related costs and office
consolidation costs  gain on sale of long-term
investments and Moab Inc. Return on assets= net income or loss / total assets Market value of total capital= market value of total debt  cash and cash equivalents + market value of equity Weighted average cost of capital= simple quarterly
average of ((market value of total debt  cash and cash
equivalents) / market value of total capital x after-tax
cost of debt + market value of equity / market value of
total capital x cost of equity) Average adjusted assets= simple average of the current
years adjusted assets and the previous years adjusted
assets, except when a material acquisition occurred, in
which case the weighted average rather than the simple
average is calculated; the last material acquisition was
in 1997.




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##### 



55 POTASHCORP 2004 ANNUAL REPORT  |  MANAGEMENTS RESPONSIBILITY Managements Responsibility for Financial Reporting MANAGEMENTS REPORT ON FINANCIAL STATEMENTS The accompanying consolidated financial statements and related financial information are the
responsibility of PotashCorp management and have been prepared in accordance with accounting
principles generally accepted in Canada and include amounts based on estimates and
judgments. Financial information included elsewhere in this report is consistent with the
consolidated financial statements. Our independent auditors, Deloitte & Touche LLP, provide an audit of the consolidated financial
statements, as reflected in their report for 2004 included on
Page 56. The consolidated financial statements are approved by the Board of Directors on the recommendation
of the audit committee. The audit committee of the Board of Directors is composed of directors who are not officers or
employees of PotashCorp. PotashCorps interim consolidated financial statements and MD&A are
discussed and reviewed by the audit committee with management and the independent auditors before
such information is approved by the committee and submitted to securities commissions or other
regulatory authorities. The annual consolidated financial statements and MD&A are also reviewed by
the audit committee together with management and the independent auditors and are approved by the
board. In addition, the audit committee has the duty to review critical accounting policies and significant
estimates and judgments underlying the consolidated financial statements as presented by
management; and to approve the fees of the independent auditors. Deloitte & Touche LLP, the independent auditors, obtain an understanding of PotashCorps internal
controls and procedures for financial reporting to plan and conduct such tests and other audit
procedures as they consider necessary in the circumstances. The independent auditors have full and
independent access to the audit committee to discuss their audit and related matters.  MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining an adequate system of internal control
over financial reporting. During the past year, we have directed efforts to improve and document our
internal control over financial reporting. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external reporting purposes in accordance with
generally accepted accounting principles. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Management has assessed the
effectiveness of the companys internal control over financial reporting based on the framework in
Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and concluded that the companys internal control over financial
reporting was effective as of December 31, 2004. Managements assessment of the effectiveness of the
companys internal control over financial reporting as of December 31, 2004 has been audited by
Deloitte & Touche LLP, as reflected in their report for 2004
included on Page 57.   -s- W. Doyle
W. Doyle
President and
Chief Executive Officer 
February 17, 2005
 -s- W. Brownlee
W. Brownlee
Senior Vice President and
Chief Financial Officer




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##### 



56 POTASHCORP 2004 ANNUAL REPORT  |  AUDITORS REPORTS  
 Report of Independent Registered Chartered Accountants TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC. We have audited the consolidated statements of financial position of Potash Corporation of
Saskatchewan Inc. (the Company) as at December 31, 2004 and 2003 and the consolidated statements of
operations and retained earnings and cash flow for each of the years in the three-year period ended
December 31, 2004. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States). These standards require
that we plan and perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of Potash Corporation of Saskatchewan Inc. as at December 31, 2004 and 2003
and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2004, in accordance with Canadian generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2004, based on the criteria established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and our
report dated February 17, 2005 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion
on the effectiveness of the Companys internal control over financial reporting. (DELOITTE & TOUCHE LLP)Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005  COMMENTS BY AUDITORS ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCES The standards of the Public Company Accounting Oversight Board (United States) require the addition
of an explanatory paragraph (following the opinion paragraph) when there are changes that have an
effect on the comparability of the consolidated financial statements or changes that have been
implemented in the financial statements, such as the changes described in Note 3, Note 14, Note 28 and Note 36 to Potash Corporation of Saskatchewan Inc.s consolidated
financial statements. Our report to the shareholders dated February 17, 2005 is expressed in
accordance with Canadian reporting standards, which do not require a reference to such changes in
accounting principles in the auditors report when the changes are properly accounted for and
adequately disclosed in the consolidated financial statements. (DELOITTE & TOUCHE LLP)Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005




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##### 



57 POTASHCORP 2004 ANNUAL REPORT  |  AUDITORS REPORTS Report of Independent Registered Chartered Accountants TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC. We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that Potash Corporation of Saskatchewan Inc. (the
Company) maintained effective internal control over financial reporting as of December 31, 2004,
based on the criteria established in Internal Control  Integrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management
is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions. A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. In our opinion, managements assessment that Potash Corporation of Saskatchewan Inc. maintained
effective internal control over financial reporting as of December 31, 2004, is fairly stated, in
all material respects, based on the criteria established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our
opinion, Potash Corporation of Saskatchewan Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on the criteria
established in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). We have also audited, in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States), the consolidated
statements of financial position of Potash Corporation of Saskatchewan Inc. as at December 31, 2004
and the consolidated statements of operations and retained earnings and cash flow for the year
ended December 31, 2004 and our report dated February 17, 2005 expressed an unqualified opinion on
these financial statements and included comments on Canada-United States of America Reporting
Differences. (DELOITTE & TOUCHE LLP)Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005




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##### 



58 POTASHCORP 2004 ANNUAL REPORT  |  CONSOLIDATED FINANCIAL STATEMENTS  
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION as at December 31
    
    in millions of US dollars except share amounts2004
    
    
    2003AssetsCurrent assetsCash and cash equivalents
    
    $
    458.9
    
    
    $
    4.7Accounts receivable(Note 5)
    
    
    352.6
    
    
    
    305.0Inventories(Note 6)
    
    
    396.8
    
    
    
    395.2Prepaid expenses and other current assets
    
    
    35.3
    
    
    
    29.01,243.6
    
    
    
    733.9Property, plant and equipment(Note 7)
    
    
    3,098.9
    
    
    
    3,108.1Other assets(Note 8)
    
    
    650.2
    
    
    
    595.4Intangible assets(Note 8)
    
    
    37.1
    
    
    
    32.9Goodwill(Note 9)
    
    
    97.0
    
    
    
    97.0$
    5,126.8
    
    
    $
    4,567.3LiabilitiesCurrent liabilitiesShort-term debt(Note 10)
    
    $
    93.5
    
    
    $
    176.2Accounts payable and accrued charges (Note 11)
    
    
    599.9
    
    
    
    380.3Current portion of long-term debt(Note 12)
    
    
    10.3
    
    
    
    1.3703.7
    
    
    
    557.8Long-term debt(Note 12)
    
    
    1,258.6
    
    
    
    1,268.6Future income tax liability(Note 26)
    
    
    499.4
    
    
    
    484.2Accrued post-retirement/post-employment benefits(Note 14)
    
    
    193.4
    
    
    
    194.5Accrued environmental costs and asset retirement obligations
(Note 15)
    
    
    81.2
    
    
    
    81.3Other non-current liabilities and deferred credits
    
    
    4.9
    
    
    
    7.12,741.2
    
    
    
    2,593.5Commitments,Contingencies
and Guarantees(Notes 13,30 and
31, respectively)Shareholders EquityShare capital(Note 16)
    
    
    1,408.4
    
    
    
    1,245.8Unlimited authorization of common shares without par value;
issued and outstanding 110,630,503 and 106,224,432 shares
in 2004 and 2003, respectivelyUnlimited authorization of first preferred shares;none outstanding
Contributed surplus(Note 17)
    
    
    275.7
    
    
    
    265.2Retained earnings
    
    
    701.5
    
    
    
    462.82,385.6
    
    
    
    1,973.8$
    5,126.8
    
    
    $
    4,567.3
 (See Notes to the Consolidated Financial Statements)
 Approved by the Board,  -s-
    

-s- E. Robert StrombergDirector
    
    Director




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##### 



59 POTASHCORP 2004 ANNUAL REPORT  |  CONSOLIDATED FINANCIAL STATEMENTS  CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS for the years ended December 31
    
    in millions of US dollars except per-share amounts2004
    
    
    2003
    
    
    2002Sales(Note 18)
    
    $
    3,244.4
    
    
    $
    2,799.0
    
    
    $
    2,224.4Less: Freight
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2Transportation and distribution
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5Cost of
goods sold (Note 19)
    
    
    2,220.0
    
    
    
    2,085.4
    
    
    
    1,621.4Gross Margin
    
    
    681.4
    
    
    
    380.4
    
    
    
    307.3Selling and
administrative (Note 20)
    
    
    130.6
    
    
    
    96.1
    
    
    
    91.7Provincial
mining and other taxes (Note 21)
    
    
    92.6
    
    
    
    57.0
    
    
    
    68.0Provision
for plant shutdowns (Note 22)
    
    
    
    
    
    
    123.7
    
    
    
    Provision
for PCS Yumbes S.C.M. (Note 23)
    
    
    3.6
    
    
    
    140.5
    
    
    
    Foreign exchange loss
    
    
    19.7
    
    
    
    51.9
    
    
    
    5.5Other income
(Note 24)
    
    
    (79.4
    )
    
    
    (33.2
    )
    
    
    (24.8
    )167.1
    
    
    
    436.0
    
    
    
    140.4Operating Income (Loss)
    
    
    514.3
    
    
    
    (55.6
    )
    
    
    166.9Interest
Expense(Note 25)
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1Income (Loss) Before Income Taxes
    
    
    430.3
    
    
    
    (146.9
    )
    
    
    83.8Income
Taxes(Note 26)
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2Net Income (Loss)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6Retained
Earnings, Beginning of Year
    
    
    462.8
    
    
    
    641.4
    
    
    
    639.8Dividends
    
    
    (59.9
    )
    
    
    (52.3
    )
    
    
    (52.0
    )Retained
Earnings, End of Year
    
    $
    701.5
    
    
    $
    462.8
    
    
    $
    641.4Net
Income (Loss) per Share  Basic(Note 27)
    
    $
    2.77
    
    
    $
    (1.21
    )
    
    $
    0.52Net
Income (Loss) per Share  Diluted(Note
27)
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51Dividends per Share
    
    $
    0.55
    
    
    $
    0.50
    
    
    $
    0.50
 (See Notes to the Consolidated Financial Statements)




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60 POTASHCORP 2004 ANNUAL REPORT  |  CONSOLIDATED FINANCIAL STATEMENTS  CONSOLIDATED STATEMENTS OF CASH FLOW for the years ended December 31
    
    in millions of US dollars2004
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    2002Operating ActivitiesNet income (loss)
    
    
    
    
    
    $
    298.6
    
    
    
    
    
    
    $
    (126.3
    )
    
    
    
    
    
    $
    53.6Items not
affecting cash
Depreciation and amortization
    
    
    240.0
    
    
    
    
    
    
    
    227.4
    
    
    
    
    
    
    
    219.1Stock-based compensation
    
    
    11.1
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    (Gain) loss
on disposal of property, plant and equipment
    
    
    (0.7
    )
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    1.0Gain on sale
of long-term investments (Note 4)
    
    
    (34.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for plant shutdowns
    
    
    
    
    
    
    
    
    
    
    118.3
    
    
    
    
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    3.6
    
    
    
    
    
    
    
    127.6
    
    
    
    
    
    
    
    Foreign exchange on future income tax
    
    
    17.2
    
    
    
    
    
    
    
    35.9
    
    
    
    
    
    
    
    1.0Provision for (recovery of) future income tax
    
    
    26.3
    
    
    
    
    
    
    
    (20.6
    )
    
    
    
    
    
    
    6.0Share of earnings of equity investees
    
    
    (30.9
    )
    
    
    
    
    
    
    (12.4
    )
    
    
    
    
    
    
    (5.3
    )(Recovery of) provision for post-retirement/post-employment
benefits
    
    
    (1.1
    )
    
    
    
    
    
    
    9.7
    
    
    
    
    
    
    
    18.2Accrued environmental costs and asset retirement obligations
    
    
    (0.1
    )
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    (3.0
    )Other non-current liabilities and deferred credits
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    (1.4
    )Subtotal of items not affecting cash
    
    
    
    
    
    
    231.0
    
    
    
    
    
    
    
    490.8
    
    
    
    
    
    
    
    235.6Changes in non-cash operating working capitalAccounts receivable
    
    
    (51.9
    )
    
    
    
    
    
    
    (39.5
    )
    
    
    
    
    
    
    (11.1
    )Inventories
    
    
    (10.5
    )
    
    
    
    
    
    
    11.8
    
    
    
    
    
    
    
    (18.2
    )Prepaid expenses and other current assets
    
    
    (6.3
    )
    
    
    
    
    
    
    11.4
    
    
    
    
    
    
    
    (3.9
    )Accounts payable and accrued charges
    
    
    102.2
    
    
    
    
    
    
    
    51.6
    
    
    
    
    
    
    
    37.0Current income taxes
    
    
    86.5
    
    
    
    
    
    
    
    (18.3
    )
    
    
    
    
    
    
    23.4Subtotal of changes in non-cash operating working capital
    
    
    
    
    
    
    120.0
    
    
    
    
    
    
    
    17.0
    
    
    
    
    
    
    
    27.2Cash provided by operating activities
    
    
    
    
    
    
    649.6
    
    
    
    
    
    
    
    381.5
    
    
    
    
    
    
    
    316.4Investing ActivitiesAdditions to
property, plant and equipment
    
    
    
    
    
    
    (220.5
    )
    
    
    
    
    
    
    (150.7
    )
    
    
    
    
    
    
    (212.2
    )Proceeds
from disposal of property, plant and equipment
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment in Sociedad Quimica y Minera de Chile S.A.(SQM)
(Note 4)
    
    
    
    
    
    
    (97.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23.2
    )Investment in Arab Potash Company (APC)
    
    
    
    
    
    
    (8.3
    )
    
    
    
    
    
    
    (178.3
    )
    
    
    
    
    
    
    Proceeds from sale of long-term investments (Note 4)
    
    
    
    
    
    
    66.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds
from sale of shares of PCS Yumbes S.C.M.
(Note 23)
    
    
    
    
    
    
    34.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends received from equity investees
    
    
    
    
    
    
    8.7
    
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    Other assets and intangibles
    
    
    
    
    
    
    (2.8
    )
    
    
    
    
    
    
    (32.7
    )
    
    
    
    
    
    
    (36.0
    )Cash used in investing activities
    
    
    
    
    
    
    (216.8
    )
    
    
    
    
    
    
    (357.7
    )
    
    
    
    
    
    
    (271.4
    )Cash before financing activities
    
    
    
    
    
    
    432.8
    
    
    
    
    
    
    
    23.8
    
    
    
    
    
    
    
    45.0Financing ActivitiesProceeds from long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0
    
    
    
    
    
    
    
    11.2Repayment of long-term debt obligations
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (3.4
    )
    
    
    
    
    
    
    (1.3
    )Repayment of short-term debt obligations
    
    
    
    
    
    
    (82.7
    )
    
    
    
    
    
    
    (296.8
    )
    
    
    
    
    
    
    (28.1
    )Dividends
    
    
    
    
    
    
    (56.1
    )
    
    
    
    
    
    
    (52.3
    )
    
    
    
    
    
    
    (52.0
    )Issuance of shares
    
    
    
    
    
    
    161.2
    
    
    
    
    
    
    
    58.9
    
    
    
    
    
    
    
    4.4Cash provided by (used in) financing activities
    
    
    
    
    
    
    21.4
    
    
    
    
    
    
    
    (43.6
    )
    
    
    
    
    
    
    (65.8
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    
    
    
    
    454.2
    
    
    
    
    
    
    
    (19.8
    )
    
    
    
    
    
    
    (20.8
    )Cash and
Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    4.7
    
    
    
    
    
    
    
    24.5
    
    
    
    
    
    
    
    45.3Cash and Cash Equivalents, End of Year
    
    
    
    
    
    $
    458.9
    
    
    
    
    
    
    $
    4.7
    
    
    
    
    
    
    $
    24.5Supplemental cash flow disclosureInterest paid
    
    
    
    
    
    $
    83.3
    
    
    
    
    
    
    $
    83.8
    
    
    
    
    
    
    $
    81.2Income taxes paid
    
    
    
    
    
    $
    33.5
    
    
    
    
    
    
    $
    22.8
    
    
    
    
    
    
    $
    4.4
  (See Notes to the Consolidated Financial Statements)




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##### 



61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS in millions of US dollars except share and per-share amounts  1.
    DESCRIPTION OF BUSINESS With its subsidiaries, Potash
Corporation of Saskatchewan Inc. (PCS)  together known as PotashCorp or the
company except to the extent the context otherwise
requires  forms an integrated fertilizer and related
industrial and feed products company. The company has
producing assets in the following locations:  
    Potash
    five mines and mills and mining rights to
potash reserves at a sixth location, all in the
province of Saskatchewan
    one mine and two mills in the province of New Brunswick
    Phosphate
    a mine and processing plant in the
state of North Carolina
    a mine and two processing plants in
the state of Florida
    a processing plant in the state of Louisiana
    phosphate feed plants in five states
and one in Brazil
    two industrial phosphoric acid plants, in the states of North Carolina and Ohio
    Nitrogen
    four plants in the states of Georgia,
Louisiana, Ohio and Tennessee
    large-scale operations in Trinidad The company owns or leases approximately 175 terminal and
warehouse facilities strategically located in Canada and
the United States, and services customers with a fleet of
approximately 6,600 railcars. PotashCorp sells potash from its Saskatchewan mines for
use outside North America exclusively to Canpotex Limited
(Canpotex). Canpotex, a potash export, sales and
marketing company owned in equal shares by the three
potash producers in the Province of Saskatchewan
(including the company), resells potash to offshore
customers. PCS Sales (Canada) Inc. and PCS Sales (USA),
Inc., wholly owned subsidiaries of PotashCorp, execute
marketing and sales for the companys potash, phosphate
and nitrogen products in North America. PCS Sales (Canada)
Inc. executes offshore marketing and sales for the
companys New Brunswick potash. PCS Sales (USA), Inc.
generally executes offshore marketing and sales for the
companys nitrogen products. Phosphate Chemicals Export
Association, Inc. (PhosChem), an unrelated phosphate
export association established under United States law, is
the principal vehicle through which the company executes
offshore marketing and sales for its phosphate
fertilizers.  2.
    SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The companys accounting policies are in accordance with
Canadian generally accepted accounting principles
(Canadian GAAP). These policies are consistent with
accounting principles generally accepted in the United
States (US GAAP) in all material respects except as
outlined in Note 36. The preparation of consolidated
financial statements in accordance with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated
 financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. As described in Notes 22 and 23, during 2003 the company approved
plans to restructure certain operations. Those plans required significant
estimates to be made of: (i) the recoverability of the carrying value of
certain assets based on their capacity to generate future cash flows;
and (ii) employee termination, contract termination and other exit
costs. Because restructuring activities are complex processes that can
take several months to complete, they involve periodically reassessing
estimates. As a result, the company may have to change originally
reported estimates when actual payments are made or the activities
are completed. As described in Note 16, on July 21, 2004, the Board of Directors of
PCS approved a split of the companys outstanding common shares on
a two-for-one basis. The stock split was effected in the form of a stock
dividend. All equity-based benefit plans, share and per-share data have
been retroactively adjusted to reflect the stock split. The following accounting policies are considered to be significant: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of
PotashCorp and its principal operating subsidiaries:  
    PCS Sales (Canada) Inc.
    PCS Joint Venture, L. P.
    PCS Sales (USA), Inc.
    PCS Phosphate Company, Inc.
    PCS Purified Phosphates
    White Springs Agricultural Chemicals, Inc. (White Springs)
    PCS Nitrogen, Inc. (PCS Nitrogen)
    PCS Nitrogen Fertilizer, L. P.
    PCS Nitrogen Ohio, L. P.
    PCS Nitrogen Trinidad Limited
    PCS Cassidy Lake Company (PCS Cassidy Lake)
    PCS Yumbes S. C. M. (PCS Yumbes)  sold in 2004 (see Note 23)
    PCS Fosfatos do Brasil Ltda. All significant intercompany balances and transactions have been
eliminated. CASH EQUIVALENTS Highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. INVENTORIES Inventories of finished product, raw materials and work in process are
valued at the lower of cost and market. Cost for substantially all raw
materials and work in process inventories is determined using the first
in, first out (FIFO) method. Certain inventories of materials and supplies
are valued at the lower of average cost and replacement cost and
certain inventories of materials and supplies are valued at the lower
of cost and market. Cost for substantially all finished product is
determined using the weighted average cost method.




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##### 



62 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share mounts   2.
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREPAID EXPENSES Prepaid expenses include prepaid freight relating to
product inventory stored at warehouse and terminal
facilities. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment (which includes mine
development costs) are carried at cost. Costs of
additions, betterments, renewals and interest during
construction are capitalized. Maintenance and repair expenditures, which do not improve
or extend productive life, are expensed as incurred. DEPRECIATION AND AMORTIZATION Certain mining and milling assets are depreciated using
the units of production method based on the shorter of
estimates of reserves or service lives. Other asset
classes are depreciated or amortized on a straight-line
basis as follows: land improvements 5 to 30 years,
buildings and improvements 6 to 30 years and machinery and
equipment (comprised primarily of plant equipment) 20 to
25 years. GOODWILL All business combinations are accounted for using the
purchase method. Goodwill is carried at cost, is not
amortized and represents the excess of the purchase price
and related costs over the fair value assigned to the net
tangible assets of businesses acquired. OTHER ASSETS AND INTANGIBLES Issue costs of long-term obligations are capitalized to
deferred charges and are amortized to expense over the
term of the related liability. Preproduction costs are
capitalized to deferred charges and represent costs
incurred prior to obtaining commercial production at new
facilities, net of revenue earned, and are amortized on either a straight-line or
units of production basis over a maximum of 10 years. The costs of constructing bases for gypsum stacks and
settling ponds are capitalized to deferred charges and are
amortized on a straight-line basis over their estimated
useful lives of 3 to 5 years. Investments in which the company exercises significant
influence (but does not control) are accounted for using
the equity method. Other investments are stated at cost.
An investment is considered impaired if its fair value
falls below its cost, and the decline is considered other
than temporary. Rotational plant maintenance costs, which consist
primarily of planned major maintenance projects (also
known as turnarounds), are capitalized when incurred and
are amortized over a period that generally does not exceed
1 year. Finite-lived intangible assets are amortized over their
estimated useful lives as follows: production and
technology rights 25 to 30 years and computer software 5
years. ASSET IMPAIRMENT The company reviews both long-lived assets to be held and
used and identifiable intangible assets with finite lives
whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be fully
recoverable. Determination of recoverability is based on
an estimate of undiscounted future cash flows resulting
from the use of the asset and its eventual disposition.
Measurement of an impairment loss for long-lived assets
and certain identifiable intangible
 assets that management expects to hold and use is based on
the fair value of the assets, whereas such assets to be
disposed of are reported at the lower of carrying amount
or fair value less costs to sell. During 2004 and 2003,
the company recognized asset impairment charges as described in Notes 22 and 23. As at December
31, 2004, the company determined that there were no other
triggering events requiring impairment analysis. Goodwill impairment is assessed at the reporting unit
level at least annually, in April. Reporting units
comprise business operations with similar economic
characteristics and strategies and may represent either a
business segment or a business unit within a business
segment. Potential impairment is identified when the
carrying value of a reporting unit, including the
allocated goodwill, exceeds its fair value. Goodwill
impairment is measured as the excess of the carrying
amount of the reporting units allocated goodwill over the
implied fair value of the goodwill, based on the fair
value of the assets and liabilities of the reporting unit. The fair values are estimated using accepted valuation
methodologies such as discounted future net cash flows,
earnings multiples or prices for similar assets, whichever
is most appropriate under the circumstances. LEASES Leases entered into are classified as either capital or
operating leases. Leases that transfer substantially all
of the benefits and risks of ownership of property to the
company are accounted for as capital leases. Equipment
acquired under capital leases is depreciated on the same
basis as other property, plant and equipment. Gains or
losses resulting from sale/leaseback transactions are
deferred and amortized in proportion to the amortization
of the leased asset. Rental payments under operating
leases are expensed as incurred. POST-EMPLOYMENT AND POST-RETIREMENT BENEFITS The company offers a number of benefit plans that provide
pension and other benefits to qualified employees. These
plans include defined benefit pension plans, supplemental
pension plans, defined contribution plans and health,
disability, dental and life insurance plans. The company accrues its obligations under employee benefit
plans and the related costs, net of plan assets. The cost
of pensions and other retirement benefits earned by
employees is generally actuarially determined using the
projected benefit method prorated on service and
managements best estimate of expected plan investment
performance, salary escalation, retirement ages of
employees and expected health-care costs. For the purpose
of calculating the expected return on plan assets, those
assets are valued at fair value. Prior service costs from
plan amendments are deferred and amortized on a
straight-line basis over the average remaining service
period of employees active at the date of amendment.
Actuarial gains (losses) arise from the difference between
actual long-term rate of return on plan assets for a
period and the expected long-term rate of return on plan
assets for that period, or from changes in actuarial
assumptions used to determine the accrued benefit
obligation. The excess of the net accumulated actuarial
gain (loss) over 10 percent of the greater of the benefit
obligation and the fair value of plan assets is amortized
over the average remaining service period of active
employees. The average remaining service period of the
active employees covered by the companys pension plans is
16.3 years (2003  15.3). The average remaining service
period of the active employees covered by the




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##### 



63 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts   2.
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) companys other benefits plans is 13. 7 years (2003  13.5).
When the restructuring of a benefit plan gives rise to
both a curtailment and a settlement of obligations, the
curtailment is accounted for prior to the settlement.
Actuaries perform valuations on a regular basis to
determine the actuarial present value of the accrued
pension and other retirement benefits. Pension expense includes the net of managements best
estimate of the cost of benefits provided, interest cost
of projected benefits, return on plan assets, amortization
of experience gains or losses and plan amendments, and
changes in the valuation allowance. Defined contribution plan costs are recognized in earnings
for services rendered by employees during the period. ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS Environmental costs that relate to current operations are
expensed or capitalized as appropriate. Environmental
costs are capitalized if the costs extend the life of the
property, increase its capacity, mitigate or prevent
contamination from future operations, or relate to legal
asset retirement obligations. Costs that relate to
existing conditions caused by past operations and that do
not contribute to current or future revenue generation are
expensed. Provisions for estimated costs are recorded when
environmental remedial efforts are likely and the costs
can be reasonably estimated. In determining the
provisions, the company uses the most current information
available, including similar past experiences, available
technology, regulations in effect, the timing of
remediation and cost-sharing arrangements. The company recognizes its obligations to retire certain
tangible long-lived assets in accordance
with Canadian Institute of Chartered Accountants (CICA)
Section 3110, Accounting for Asset Retirement
Obligations (see Note 3). Under Section 3110, the fair
value of a liability for an asset retirement obligation is
recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset and then
amortized over its estimated useful life. In subsequent
periods, the asset retirement obligation is adjusted for
the passage of time and any changes in the amount or
timing of the underlying future cash flows through charges
to earnings. A gain or loss may be incurred upon
settlement of the liability. STOCK-BASED COMPENSATION PLANS The company has four stock-based compensation plans, which
are described in Note 28. The company accounts for its
grants under those plans in accordance with the fair value
based method of accounting for stock-based compensation.
For stock option plans, the fair value of stock options is
determined on their grant date and recorded as
compensation expense over the period that the stock
options vest, with a corresponding increase to contributed
surplus. When stock options are exercised, the proceeds,
together with the amount recorded in contributed surplus,
are recorded in share capital. FOREIGN EXCHANGE TRANSACTIONS The companys functional currency is the US dollar. Canadian dollar operating transactions are translated to
US dollars at the average exchange rate for the previous
month. Trinidad dollar operating transactions are
translated to US dollars at the average
 exchange rate for the period. Monetary assets and
liabilities are translated at period-end exchange rates.
Non-monetary assets owned at December 31, 1994 have been
translated under the translation of convenience method at
the December 31, 1994 year-end exchange rate of US $1.00 =
Cdn $1.4028. Additions subsequent to December 31, 1994
are translated at the exchange rate prevailing at the time
of the transaction. Translation exchange gains and losses
of integrated foreign operations are reflected in
earnings. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are used by the company
to manage its exposure to exchange rate, interest rate and
commodity price fluctuations. The companys policy is not
to utilize derivative financial instruments for trading or
speculative purposes. The company formally documents all
relationships between hedging instruments and hedged
items, as well as its risk-management objective and
strategy for undertaking the hedge transaction. This
process includes linking derivatives to specific assets
and liabilities or to specific firm commitments or
forecasted transactions. The company also assesses, both
at the hedges inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values of
hedged items. When derivative instruments have been
designated within a hedge relationship and are highly
effective in offsetting the identified risk
characteristics of specific financial assets and
liabilities, or groups of financial assets and
liabilities, hedge accounting is applied to these
derivative instruments. Hedge accounting requires that
gains, losses, revenue and expenses of a hedging item be
recognized in the same period that the associated gains,
losses, revenue and expenses of the hedged item are
recognized. A hedging relationship is terminated if the
hedge ceases to be effective; if the underlying asset or
liability being hedged is derecognized or if it is no
longer probable that the anticipated transaction will
occur and the derivative instrument is still outstanding; or if the derivative instrument is no longer
designated as a hedging instrument. If a hedging
relationship is terminated, the difference between the
fair value and the accrued value of the hedging derivatives upon
termination is deferred and recognized into earnings on
the same basis as gains, losses, revenue and expenses of
the previously hedged item are recognized. The company enters into natural gas futures, swaps and
option agreements to manage the cost of natural gas. Gains
or losses resulting from changes in the fair value of
natural gas hedging transactions which have not yet been
settled are not recognized, as they generally relate to
changes in the spot price of anticipated natural gas
purchases. Gains or losses arising from gas hedging
transactions that have been settled, terminated or cease
to be effective prior to maturity are deferred as a
component of inventory until the product containing the
hedged item is sold, at which time both the natural gas
purchase cost and the related hedging deferral are
recorded as cost of sales. The company regularly evaluates
its unrecognized or deferred gains and losses on these
derivatives from a net realizable value of inventory
perspective and establishes appropriate provisions, if
necessary. The company periodically uses interest rate swaps to
manage the interest rate mix of the total debt portfolio
and related overall cost of borrowing. Hedge accounting
treatment for interest rate swaps results in interest
expense on the related debt being reflected at hedged
rates rather than original contractual interest rates.




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##### 



64 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts  2.
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The company enters into foreign currency forward contracts
in respect of its Canadian dollar requirements for
operating and capital expenditures. These contracts are
not designated as hedging instruments for accounting
purposes. Accordingly, they are marked-to-market and
carried at fair value as assets or liabilities, as
appropriate, with changes in fair value recognized in
earnings. REVENUE RECOGNITION Sales revenue is recognized when the product is shipped,
the sales price is determinable and collectability is
reasonably assured. Revenue is recorded based on the FOB
mine, plant, warehouse or terminal price, except for
certain vessel sales which are shipped on a delivered
basis. Transportation costs are recovered from the
customer through sales pricing. RECENT ACCOUNTING PRONOUNCEMENTS In June 2003, the CICA issued Accounting Guideline 15
(AcG-15), Consolidation of Variable Interest
Entities. In August 2004, a revised guideline
(AcG-15(R)) was
issued to ensure that AcG-15 was harmonized with FIN
46(R), its US GAAP equivalent. AcG-15(R) provides guidance
for applying consolidation principles to certain entities
that are subject to control on a basis other than
ownership of voting interests. AcG-15(R) is effective for
annual and interim periods, beginning on or after November 1, 2004. The company does not expect application of the
guideline to have a material impact on its consolidated
financial statements. In January 2005, the CICA issued Section 1530,
Comprehensive Income, Section 3251, Equity, Section
3855, Financial Instruments  Recognition and
Measurement and Section 3865, Hedges. Under the new
standards: a new location for recognizing certain gains and
losses  other comprehensive income  has been introduced providing an ability for certain gains and
losses arising from changes in fair value to be
temporarily recorded outside the income statement, but in
a transparent manner; all financial instruments, including
derivatives, are to be included on a companys balance
sheet and measured in most cases at their fair values; and
existing requirements for hedge accounting are extended.
The guidance will apply for interim and annual financial
statements relating to fiscal years beginning on or after
October 1, 2006. Earlier adoption will be permitted only
as of the beginning of a fiscal year. The company is in
the process of evaluating the impact of these recently
issued standards on its consolidated financial statements.  3.
    CHANGES IN ACCOUNTING POLICY SOURCES OF GAAP Effective January 1, 2004, the company prospectively
adopted new accounting requirements of the CICA as issued
in Section 1100, Generally Accepted Accounting
Principles. This section establishes standards for
financial reporting in accordance with Canadian GAAP and
provides guidance on sources to consult when selecting
accounting policies and determining appropriate
disclosures when a matter is not dealt with explicitly in
the primary sources of Canadian GAAP. In light of the new
Section 1100 provisions, the company reviewed the
application of its accounting policies and changed the
consolidated financial statement presentation of sales
revenue, freight costs and transportation and distribution
expenses, which were previously reported on a net basis,
to now reporting as separate line items on the
Consolidated Statements of Operations and Retained
 Earnings. There was no effect on gross margin or net
income. All comparative information has been appropriately
reclassified. ASSET RETIREMENT OBLIGATIONS As described in Note 2, on January 1, 2004, the company
retroactively adopted CICA Section 3110, Accounting for
Asset Retirement Obligations, which requires the company
to record an asset and related liability for the costs
associated with the retirement of long-lived tangible
assets when a legal liability to retire such assets
exists. This includes obligations incurred as a result of
acquisition, construction or normal operation of a
long-lived asset. The company has recorded asset
retirement obligations primarily associated with certain
closure, reclamation and restoration costs for its potash
and phosphate operations (see Note 15). The adoption of Section 3110 did not have a significant
effect on the results of operations or financial position
of the company. Had the provisions of Section 3110 been
applied as of January 1, 2003, the pro forma effects on
net loss would not have been material for the year ended
December 31, 2003. HEDGING RELATIONSHIPS Effective January 1, 2004, the company adopted CICA
Accounting Guideline 13 (AcG-13), Hedging
Relationships. This guideline sets out the criteria that
must be met in order to apply hedge accounting for
derivatives. The guideline provides detailed guidance on
the identification, designation, documentation and
effectiveness of hedging relationships for purposes of
applying hedge accounting, and the discontinuance of hedge
accounting. Income and expenses on derivative instruments
designated and qualifying as hedges under this guideline
are recognized in earnings in the same period as the
related hedged item. Ineffective hedging relationships and
hedges not designated in a hedging relationship are
carried at fair value on the Consolidated Statement of
Financial Position, and subsequent changes in their fair value are recorded in earnings. The adoption
of this accounting guideline did not have a material
impact on the consolidated financial statements.  4.
    BUSINESS ACQUISITION On December 21, 2004, the company acquired all the
outstanding shares of RAC Investments Ltd. (RAC Investments), an indirect subsidiary of Israel
Chemicals Ltd. (ICL), for $100.7, including acquisition
costs. RAC Investments is an investment holding company
which indirectly owns 19,200,242 Series A shares and
2,699,773 Series B shares in SQM, a Chilean specialty
fertilizer, iodine and lithium company. RAC Investments
earnings have been included in the consolidated financial
statements since the acquisition date. The following table
summarizes the fair value of the assets acquired and
liabilities assumed at the date of acquisition. Cash
    
    $
    3.5Investment in SQM
    
    
    97.2Total assets acquired
    
    
    100.7Future income taxes
    
    
    Total liabilities assumed
    
    
    Net assets acquired
    
    
    100.7Less: cash acquired
    
    
    (3.5
    )Cash consideration
    
    $
    97.2




---



##### 



65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts   4. BUSINESS ACQUISITION (CONTINUED) Prior to execution of the above noted transaction, the
company (through a subsidiary) sold 8,500,000 Series A
shares of SQM via public auction on the Santiago Stock
Exchange (the Exchange) and 1,301,724 Series A shares in
other Exchange transactions. Proceeds on sale were
$66.3, resulting in a non-taxable gain recorded in Other
Income of $34.4, net of selling costs (see Note 24).The
company now indirectly holds 63,062,037 Series A shares
and 2,699,773 Series B shares of SQM. 5. ACCOUNTS RECEIVABLE 2004
    
    
    2003Trade accounts  Canpotex
    
    $
    55.7
    
    
    $
    28.3 Other
    
    
    260.0
    
    
    
    244.8Non-trade accounts
    
    
    41.5
    
    
    
    36.8357.2
    
    
    
    309.9Less allowance for doubtful accounts
    
    
    (4.6
    )
    
    
    (4.9
    )$
    352.6
    
    
    $
    305.0
 6. INVENTORIES 2004
    
    
    2003Finished product
    
    $
    181.8
    
    
    $
    160.7Materials and supplies
    
    
    97.7
    
    
    
    108.0Raw materials
    
    
    50.3
    
    
    
    54.1Work in process
    
    
    67.0
    
    
    
    72.4$
    396.8
    
    
    $
    395.2
 7.
PROPERTY, PLANT AND EQUIPMENT 2004AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    223.7
    
    
    $
    42.5
    
    
    $
    181.2Buildings and improvements
    
    
    481.0
    
    
    
    177.6
    
    
    
    303.4Machinery and equipment
    
    
    4,011.1
    
    
    
    1,474.9
    
    
    
    2,536.2Mine development costs
    
    
    138.0
    
    
    
    59.9
    
    
    
    78.1$
    4,853.8
    
    
    $
    1,754.9
    
    
    $
    3,098.9
 2003AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    225.7
    
    
    $
    38.6
    
    
    $
    187.1Buildings and improvements
    
    
    469.0
    
    
    
    164.9
    
    
    
    304.1Machinery and equipment
    
    
    3,856.4
    
    
    
    1,317.2
    
    
    
    2,539.2Mine development costs
    
    
    133.2
    
    
    
    55.5
    
    
    
    77.7$
    4,684.3
    
    
    $
    1,576.2
    
    
    $
    3,108.1
 Depreciation and amortization of property, plant and equipment included in cost of goods sold and
in selling and administrative was $210.9 (2003  $193.9; 2002  $188.2).The net carrying amount
of property, plant and equipment not being amortized at December 31, 2004 because it was under
construction or development was $234.9 (2003  $170.8). During the year, the company recorded an impairment charge
of $6.2 (2003  $117.6; 2002  $NIL) relating to certain
assets (see Notes 22 and 23). Interest capitalized to
property, plant and equipment during the year was $2.5
(2003  $1.5; 2002  $4.2).
 8. OTHER ASSETS AND INTANGIBLE ASSETS 2004
    
    
    2003Other
assetsInvestments at equityAPC  27 percent ownership;
quoted market value of $346.2
    
    $
    202.0
    
    
    $
    181.5SQM  25 percent ownership;
quoted market value of $445.5
    
    
    240.2
    
    
    
    164.7Other
    
    
    20.4
    
    
    
    17.0Investments at costICL  9 percent ownership;
quoted market value of $254.5
    
    
    92.8
    
    
    
    92.8Deferred charges  net of accumulated
amortization of $35.0 (2003  $26.1)
    
    
    34.8
    
    
    
    44.1Accrued pension benefit asset
    
    
    25.6
    
    
    
    22.2Rotational plant maintenance costs net of accumulated amortization
of $48.0 (2003  $33.2)
    
    
    
    
    
    
    14.8Other
    
    
    34.4
    
    
    
    58.3$
    650.2
    
    
    $
    595.4Intangible
assets net of accumulated
amortization of $11.4 (2003  $7.9)
    
    $
    37.1
    
    
    $
    32.9
 The companys share of earnings of equity investees
of $30.9 (2003  $12.4; 2002  $5.3) is included in other
income (see Note 24). During the year, the company recorded an impairment
charge of $NIL (2003  $65.4; 2002  $NIL) relating to
certain deferred charges. Amortization of deferred charges
and rotational plant maintenance costs included in cost of
goods sold and in selling and administrative was $25.6
(2003  $28.5; 2002  $30.2). Intangible assets relate primarily to production and
technology rights and computer software. Other than
goodwill (see Note 9), the company has not recognized any
intangible assets with indefinite useful lives. Total
amortization expense relating to finite-lived intangible
assets for 2004 was $3.5 (2003  $5.0; 2002 
$0.7). Amortization expense in each of the next five years
is estimated to be $5.3 for 2005, $6.0 for 2006, $5.2 for
2007, $3.9 for 2008 and $3.1 for 2009. 9. GOODWILL 2004
    
    
    2003Cost
    
    $
    104.3
    
    
    $
    104.3Accumulated amortization
    
    
    7.3
    
    
    
    7.3$
    97.0
    
    
    $
    97.0
 10. SHORT-TERM DEBT Short-term debt was $93.5 at
December 31, 2004 (2003 
$176.2). The weighted average interest rate on this debt
was 1.42 percent (2003  1.43 percent; 2002  1.70
percent). The company had an unsecured line of credit
available for short-term financing (net of letters of
credit of $15.1 and direct borrowings of $NIL) in the
amount of $59.9 at December 31, 2004 (2003  $45.3). In
addition, the company is authorized to borrow a further
$406.5 under its commercial paper program. The line of credit is subject to financial tests and
other covenants. The principal covenants require a debt to
capital ratio of less than or equal to 0.55:1, a long-term
debt to EBITDA (defined in the agreement as earnings
before interest, income taxes, provincial mining and other
taxes, depreciation, amortization and other non-cash
expenses) ratio of




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##### 



66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts   10. SHORT-TERM DEBT (CONTINUED) less than or equal to 3.5:1, tangible net worth in an
amount greater than or equal to $1,250.0 and debt of
subsidiaries not to exceed $590.0. The line of credit is
subject to other customary covenants and events of
default, including an event of default for non-payment of
other debt in excess of Cdn $40.0. Non-compliance with such
covenants could result in accelerated payment of amounts
due under the line of credit, and its termination. The
company was in compliance with the above-mentioned
covenants at December 31, 2004. 11. ACCOUNTS PAYABLE AND ACCRUED CHARGES 2004
    
    
    2003Trade accounts
    
    $
    193.0
    
    
    $
    161.6Other payables
    
    
    127.7
    
    
    
    93.1Current portion accrued environmental
costs and asset retirement obligations
    
    
    19.5
    
    
    
    18.7Accrued interest
    
    
    16.8
    
    
    
    16.1Accrued compensation
    
    
    58.8
    
    
    
    32.8Current
portion post-retirement/
post-employment benefits
    
    
    23.8
    
    
    
    15.3Income taxes
    
    
    143.6
    
    
    
    29.4Dividends
    
    
    16.7
    
    
    
    13.3$
    599.9
    
    
    $
    380.3
 12. LONG-TERM DEBT 2004
    
    
    2003Industrial Revenue and Pollution
Control Obligations
    
    $
    9.0
    
    
    $
    9.0Adjustable Rate Industrial Revenue and Pollution
Control Obligations bearing interest at an average
rate of 1.307% (2003  1.166%; 2002  1.725%)
and maturing in 2005. There are no sinking fund
requirements prior to maturity. Bank letters of
credit
are pledged as collateral for these loans.Notes Payable7.125% notes
payable June 15, 2007
    
    
    400.0
    
    
    
    400.07.750% notes
payable May 31, 2011
    
    
    600.0
    
    
    
    600.04.875% notes
payable March 1, 2013
    
    
    250.0
    
    
    
    250.0There are no sinking fund requirements prior to
maturity. These notes were issued under US shelf
registration statements covering up to $2,000.0
of debt securities. The notes are unsecured. The
2011 and 2013 notes are redeemable, in whole
or in part, at the companys option at any time
prior to maturity for a price at least equal to the
principal amount of the notes to be redeemed,
plus accrued interest.Other
    
    
    9.9
    
    
    
    10.91,268.9
    
    
    
    1,269.9Less current maturities
    
    
    10.3
    
    
    
    1.3$
    1,258.6
    
    
    $
    1,268.6
 The company has entered into back-to-back loan
arrangements involving certain financial assets and
financial liabilities. The company has presented financial
assets of $310.1 and financial liabilities of $316.0 on a
net basis because a legal right to set-off exists,
and intends to settle on a net basis. Other long-term debt
in the above table includes a net financial liability of
$5.9 (2003  $5.9) pursuant to these arrangements.
 The company has a syndicated
credit facility, renewable
annually, which provides for unsecured advances of up to
$750.0 (less the amount of direct borrowings and
commercial paper outstanding). As at December 31, 2004, no
amounts were outstanding and $656.5 was available under
the facility. Principal covenants and events of default
under the credit facility requirements are the same as the
line of credit as described in Note 10. The notes payable
are not subject to any financial test covenants but are
subject to certain customary covenants (including
limitations on liens and sale and leaseback transactions)
and events of default, including an event of default for
acceleration of other debt in excess of $50.0. Neither the
Industrial Revenue and Pollution Control Obligations nor
the other long-term debt instruments are subject to any
financial test covenants but each is subject to certain
customary covenants and events of default, including, for
other long-term debt, an event of default for non-payment
of other debt in excess of $25.0. Non-compliance with such
covenants could result in accelerated payment of the
related debt. The company was in compliance with the
above-mentioned covenants at December 31, 2004. Long-term debt at
December 31, 2004 will mature as follows: 2005
    
    $
    10.32006
    
    
    1.32007
    
    
    400.62008
    
    
    0.32009
    
    
    0.3Subsequent years
    
    
    856.1$
    1,268.9
 13. COMMITMENTS LEASE COMMITMENTS The company has various long-term operating lease
agreements for buildings, port facilities, equipment,
ocean-going transportation vessels, mineral leases and
railcars, the latest of which expires in 2025. Rental
expense for operating leases for the years ended December 31,
2004, 2003 and 2002 was $69.6,$39.9 and
$41.2, respectively. PURCHASE COMMITMENTS The company has long-term agreements for the purchase of
sulfur for use in the production of phosphoric acid. These
agreements provide for minimum purchase quantities, and certain prices are based
on market rates at the time of delivery. The commitments
included in the table below are based on contract prices
as at December 31, 2004. The company has entered into long-term natural gas
contracts with the National Gas Company of Trinidad. The
contracts provide for prices that vary with ammonia market
prices, escalating floor prices and minimum purchase
quantities. The commitments included in the table below are
based on floor prices and minimum purchase quantities. The company also has a long-term agreement for the
purchase of phosphate rock used at the Geismar
facility. The commitments included in the table below are
based on the expected purchase quantity and current base
prices (less applicable discounts).




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##### 



67 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts   13.
    COMMITMENTS (CONTINUED) OTHER COMMITMENTS Other operating commitments consist principally of amounts
relating to the companys contracts to purchase limestone
that run through 2007 and various rail freight contracts,
the latest of which expire in 2010. Minimum future commitments under these contractual
arrangements for the next five years and thereafter are
shown below. Operating
    
    Purchase
    
    OtherLeases
    
    Commitments
    
    Commitments2005
    
    $
    78.9
    
    
    $
    104.5
    
    
    $
    13.42006
    
    
    69.8
    
    
    
    99.7
    
    
    
    10.82007
    
    
    62.9
    
    
    
    91.2
    
    
    
    9.12008
    
    
    50.9
    
    
    
    79.9
    
    
    
    8.42009
    
    
    47.2
    
    
    
    79.9
    
    
    
    8.4Thereafter
    
    
    257.3
    
    
    
    452.0
    
    
    
    4.2Total
    
    $
    567.0
    
    
    $
    907.2
    
    
    $
    54.3
  14.
    POST-RETIREMENT/POST-EMPLOYMENT BENEFITS PENSION PLANS Canada Substantially all employees of the company are
participants in either a defined contribution or a defined
benefit pension plan.
 The company has established a supplemental retirement
income plan for senior management which is unfunded,
non-contributory and provides a supplementary pension
benefit. The plan is provided for by charges to earnings sufficient to
meet the projected benefit obligation. United States The company has defined benefit pension plans that cover a
substantial majority of its employees. Benefits are based
on a combination of years of service and compensation
levels, depending on the plan. Generally, contributions to the US plans are made to meet or exceed
minimum funding requirements of the Employee Retirement
Income Security Act of 1974 (ERISA). Trinidad The company has contributory defined benefit pension plans
that cover a substantial majority of its employees.
Benefits are based on service. The plans assets consist
mainly of local government and other bonds, local mortgage
and mortgage-backed securities, fixed income deposits and
cash. OTHER POST-RETIREMENT PLANS The company provides certain
contributory health-care
plans and non-contributory life insurance benefits for
retired employees. These plans contain certain
cost-sharing features such as deductibles and coinsurance,
and are unfunded, with benefits subject to change.
   DEFINED BENEFIT PENSION AND OTHER POST-RETIREMENT/POST-EMPLOYMENT BENEFIT PLANS The components of net expense for the companys pension and other post-retirement/post-employment
benefit plans, computed actuarially, were as follows: Pension
    
    
    Other2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Costs arising in the periodService cost for benefits earned during the
year
    
    $
    12.9
    
    
    $
    12.2
    
    
    $
    12.0
    
    
    $
    5.2
    
    
    $
    5.5
    
    
    $
    4.1Interest cost on projected benefit obligations
    
    
    30.2
    
    
    
    29.6
    
    
    
    28.1
    
    
    
    13.2
    
    
    
    12.9
    
    
    
    13.9Actual return on plan assets
    
    
    (47.1
    )
    
    
    (73.3
    )
    
    
    18.1
    
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    23.3
    
    
    
    27.3
    
    
    
    37.1
    
    
    
    (6.8
    )
    
    
    25.7
    
    
    
    7.4Plan amendments
    
    
    
    
    
    
    2.3
    
    
    
    1.9
    
    
    
    
    
    
    
    (12.6
    )
    
    
    Change in valuation allowance
    
    
    (2.2
    )
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Costs arising in the period
    
    
    17.1
    
    
    
    0.1
    
    
    
    97.2
    
    
    
    11.6
    
    
    
    31.5
    
    
    
    25.4Difference between costs arising in the
period and
costs recognized in the period in respect of:Return on plan assets
    
    
    13.6
    
    
    
    42.9
    
    
    
    (50.0
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial (gain) loss
    
    
    (20.2
    )
    
    
    (27.4
    )
    
    
    (36.5
    )
    
    
    9.5
    
    
    
    (13.6
    )
    
    
    3.5Plan amendments
    
    
    0.4
    
    
    
    (2.2
    )
    
    
    (1.8
    )
    
    
    (1.9
    )
    
    
    2.5
    
    
    
    (9.7
    )Transitional obligation
    
    
    1.5
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net expense
    
    $
    12.4
    
    
    $
    18.5
    
    
    $
    8.9
    
    
    $
    19.2
    
    
    $
    20.4
    
    
    $
    19.2
 The assumptions used to determine the benefit obligation and expense for the companys significant
plans were as follows (weighted average as of December 31): Pension
    
    
    Other2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Discount rate  obligation
    
    
    5.75%
    
    
    
    6.10%
    
    
    
    6.50%
    
    
    
    5.75%
    
    
    
    6.10%
    
    
    
    6.50%Discount rate  expense
    
    
    6.10%
    
    
    
    6.50%
    
    
    
    7.25%
    
    
    
    6.10%
    (1)
    
    
    6.50%
    
    
    
    7.25%Long-term rate of return on assets
    
    
    8.50%
    
    
    
    8.50%
    
    
    
    9.00%
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aRate of increase in compensation levels
    
    
    4.00%
    
    
    
    4.00%
    
    
    
    4.00%
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
  (1)
    Discount rate changed to 6. 25% effective July 1, 2004, upon recognition of Medicare Part D.




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##### 



68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts  14.
    POST-RETIREMENT/POST-EMPLOYMENT BENEFITS (CONTINUED) The assumed health-care cost trend rates are as follows: 2004
    
    
    2003
    
    
    2002Health-care cost trend rates assumed for next year
    
    
    6.00%
    
    
    
    6.00%
    
    
    
    10.00%Ultimate
health-care cost trend rate assumed
    
    
    6.00%
    
    
    
    6.00%
    
    
    
    6.00%Year that the rate reaches the ultimate trend rate
    
    
    2004
    
    
    
    2003
    
    
    
    2006
 Effective January 1, 2004, the companys largest retiree medical plan limits the companys share of
annual medical cost increases to 4.5 percent for recent and future retirees. Any cost increases in
excess of this amount are funded by increased retiree contributions. The company employs a building block approach in determining the long-term rate of return for
pension plan assets. Historical markets are studied and long-term historical relationships between
equities and fixed-income are preserved consistent with the widely accepted capital market
principle that assets with higher volatility generate a greater return over the long run. Current
market factors such as inflation and interest rates are evaluated before long-term capital market
assumptions are determined. The long-term rate of return is established with proper consideration
of diversification and rebalancing. Peer data and historical returns are considered to check for
reasonability and appropriateness. The company is a sponsor of
certain US post-retirement health-care plans that were impacted by the
US Medicare Prescription Drug, Improvement and Modernization Act of 2003. This legislation expanded
Medicare to include (for the first time) coverage for prescription drugs and introduced a
prescription drug benefit and federal subsidy to sponsors of retiree
health-care benefit plans that
provide benefits at least actuarially equivalent to Medicare Part D. The company has accounted for
the impact of the legislation prospectively as of July 1, 2004. The federal subsidy had the effect
of reducing the companys accumulated post-retirement benefit obligation by $23.2 and reducing the
net periodic post-retirement benefit cost for the period by $1.7. The company uses a December 31 measurement date for the majority of its plans. The most recent
actuarial valuations of the majority of the pension plans for funding purposes were as of January 1, 2004,
and the next required valuations will be as of January 1, 2005. The change in benefit
obligations and change in plan assets for the above pension and other post-retirement/post-employment plans were as
follows: Pension
    
    
    Other2004
    
    
    2003
    
    
    2004
    
    
    2003Change in Benefit ObligationsBalance, beginning of year
    
    $
    502.4
    
    
    $
    449.2
    
    
    $
    230.7
    
    
    $
    208.3Service cost
    
    
    12.9
    
    
    
    12.2
    
    
    
    5.2
    
    
    
    5.5Interest cost
    
    
    30.2
    
    
    
    29.6
    
    
    
    13.2
    
    
    
    12.9Participants contributions
    
    
    0.2
    
    
    
    0.3
    
    
    
    2.8
    
    
    
    1.8Actuarial loss (gain)
    
    
    23.9
    
    
    
    27.3
    
    
    
    (6.8
    )
    
    
    25.7Foreign exchange rate changes
    
    
    3.1
    
    
    
    6.4
    
    
    
    1.1
    
    
    
    Amendments
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    (14.0
    )Benefits paid
    
    
    (24.1
    )
    
    
    (24.9
    )
    
    
    (10.8
    )
    
    
    (9.5
    )Balance, end of year
    
    
    548.6
    
    
    
    502.4
    
    
    
    235.4
    
    
    
    230.7Change in Plan AssetsFair value, beginning of year
    
    
    406.1
    
    
    
    330.4
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    47.1
    
    
    
    73.6
    
    
    
    
    
    
    
    Employer contributions
    
    
    20.5
    
    
    
    23.3
    
    
    
    8.0
    
    
    
    7.7Participants contributions
    
    
    0.2
    
    
    
    0.3
    
    
    
    2.8
    
    
    
    1.8Foreign exchange rate changes
    
    
    3.1
    
    
    
    3.4
    
    
    
    
    
    
    
    Benefits paid
    
    
    (24.1
    )
    
    
    (24.9
    )
    
    
    (10.8
    )
    
    
    (9.5
    )Fair value, end of year
    
    
    452.9
    
    
    
    406.1
    
    
    
    
    
    
    
    Funded Status
    
    
    (95.7
    )
    
    
    (96.3
    )
    
    
    (235.4
    )
    
    
    (230.7
    )Valuation allowance
    
    
    (11.7
    )
    
    
    (13.9
    )
    
    
    
    
    
    
    Unamortized net actuarial loss
    
    
    93.1
    
    
    
    86.1
    
    
    
    55.3
    
    
    
    70.5Unamortized prior service cost
    
    
    3.8
    
    
    
    4.4
    
    
    
    (9.1
    )
    
    
    (15.3
    )Unamortized transitional obligation
    
    
    6.7
    
    
    
    7.6
    
    
    
    1.4
    
    
    
    Accrued
post-retirement/post-employment
benefits
    
    $
    (3.8
    )
    
    $
    (12.1
    )
    
    $
    (187.8
    )
    
    $
    (175.5
    )Amounts included in:LiabilitiesCurrent (Note 11)
    
    $
    (16.0
    )
    
    $
    (7.7
    )
    
    $
    (7.8
    )
    
    $
    (7.6
    )Long-term
    
    
    (4.6
    )
    
    
    (17.7
    )
    
    
    (188.8
    )
    
    
    (176.8
    )Other assets (Note 8)
    
    
    16.8
    
    
    
    13.3
    
    
    
    8.8
    
    
    
    8.9$
    (3.8
    )
    
    $
    (12.1
    )
    
    $
    (187.8
    )
    
    $
    (175.5
    )




---



##### 



69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts   14.
    POST-RETIREMENT/POST-EMPLOYMENT BENEFITS (CONTINUED) The accumulated benefit obligation for all defined benefit
pension plans was $484.7 and $439.6 at December 31, 2004
and 2003, respectively. The aggregate projected benefit
obligation, accumulated benefit obligation and aggregate
fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets
were as follows: 2004
    
    
    2003Projected benefit obligation
    
    $
    520.4
    
    
    $
    460.1Accumulated benefit obligation
    
    
    467.9
    
    
    
    411.4Fair value of plan assets
    
    
    391.1
    
    
    
    355.0
 SENSITIVITY OF ASSUMPTIONS The effect of a change in the
health-care cost trend rate
on the other post-retirement/post-employment benefit
obligation and the aggregate of service and interest cost
would have been as follows: 2004
    
    
    2003
    
    
    2002As reported:Benefit obligation
    
    $
    235.4
    
    
    $
    230.7
    
    
    $
    208.3Aggregate of service
and interest cost
    
    
    18.4
    
    
    
    18.4
    
    
    
    18.0Increase of 1.0 percentage point:Benefit obligation
    
    
    34.4
    
    
    
    36.3
    
    
    
    35.0Aggregate of service
and interest cost
    
    
    3.3
    
    
    
    3.8
    
    
    
    3.3Decrease of 1.0 percentage point:Benefit obligation
    
    
    (35.3
    )
    
    
    (31.7
    )
    
    
    (28.7
    )Aggregate of service
and interest cost
    
    
    (3.4
    )
    
    
    (3.1
    )
    
    
    (2.7
    )
 The above sensitivities should be used with
caution. Changes in amounts based on a 1.0 percentage point
variation in assumptions generally cannot be extrapolated
because the relationship of the change in assumption to
the change in amounts may not be linear. The sensitivities
have been calculated independently of changes in other key
variables. Changes in one factor may result in changes in
another, which could amplify or reduce certain
sensitivities. PLAN ASSETS Approximate asset allocations, by asset category, of the
companys significant pension plans were as follows at
December 31: Asset Category
    
    Target
    
    
    2004
    
    
    2003Equity securities
    
    
    65%
    
    
    
    67%
    
    
    
    67%Debt securities
    
    
    35%
    
    
    
    32%
    
    
    
    32%Real estate
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    1%
    
    
    
    1%Total
    
    
    100%
    
    
    
    100%
    
    
    
    100%
 The company employs a total return investment approach
whereby a mix of equities and fixed income investments is
used to maximize the long-term return of plan assets for a
prudent level of risk. Risk tolerance is established
through careful consideration of plan liabilities, plan
funded status and corporate financial condition. The
investment portfolio contains a diversified blend of
equity and fixed income investments.
 Furthermore, equity investments are diversified across US
and non-US stocks, as well as growth, value and small and
large capitalizations. US equities also are diversified
across actively managed and passively invested portfolios.
Other assets such as private equity and hedge funds are not used at this time. Derivatives may
be used to gain market exposure in an efficient and timely
manner; however, derivatives may not be used to leverage
the portfolio beyond the market value of the underlying
investments. Investment risk is measured and monitored on
an ongoing basis through quarterly investment portfolio
reviews, annual liability measurements and periodic
asset/liability studies. Investment strategy in Trinidad
is largely dictated by local investment restrictions
(maximum of 50 percent in equities and 20 percent foreign)
and asset availability since the local equity market is
small and there is little secondary market activity in
debt securities. DEFINED CONTRIBUTION SAVINGS PLANS All of the companys US employees may participate in
defined contribution savings plans. These plans are
subject to US federal tax limitations and provide for
voluntary employee salary deduction contributions. The
company suspended its contributions of up to 5 percent of
salary in July 2003. Contributions were reinstated in
August 2004, providing a minimum of 3 percent (to a
maximum of 6 percent) of salary based on company
performance. The companys 2004 contributions were $2.9
(2003  $3.4; 2002  $5.0). All of the companys Canadian
salaried employees and certain hourly employees
participate in the PCS Inc. Savings Plan and may make
voluntary contributions. The company suspended its
contributions to this plan in July 2003. Contributions
were reinstated in August 2004, providing a minimum of 3
percent (to a maximum of 6 percent) of salary based on
company performance. The companys contributions in 2004
were $0.7 (2003  $0.9; 2002  $1.5). CASH PAYMENTS Total cash payments for pensions and other post-retirement/ post-employment benefits for 2004,
consisting of cash contributed by the company to its funded pension plans, cash payments directly
to beneficiaries for its unfunded other benefit plans and cash contributed to its defined
contribution plans, were $32.4 (2003  $35.5). Approximately $35.1 is expected to be contributed by the
company to all plans during 2005. ESTIMATED FUTURE BENEFIT PAYMENTS The following benefit payments, which reflect expected
future service, as appropriate, are expected to be paid
from either corporate assets or the qualified pension
trusts: OtherReduction dueto MedicarePension
    
    
    Gross
    
    
    Part D Subsidy
    
    Net2005
    
    $
    23.5
    
    
    $
    9.0
    
    
    $
    
    
    
    $
    9.02006
    
    
    24.0
    
    
    
    9.4
    
    
    
    0.6
    
    
    
    8.82007
    
    
    24.8
    
    
    
    10.0
    
    
    
    0.6
    
    
    
    9.42008
    
    
    25.9
    
    
    
    10.5
    
    
    
    0.6
    
    
    
    9.92009
    
    
    27.4
    
    
    
    11.0
    
    
    
    0.7
    
    
    
    10.32010-2014
    
    
    162.9
    
    
    
    65.8
    
    
    
    4.3
    
    
    
    61.5




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##### 



70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  15.
    ENVIRONMENTAL COSTS AND ASSET
RETIREMENT OBLIGATIONS The company records an asset and related retirement
obligation for the costs associated with the retirement of
long-lived tangible assets when a legal liability to
retire such assets exists. The major categories of asset
retirement obligations include reclamation and restoration
costs at the companys potash and phosphate mining
operations (most particularly phosphate mining), including
management of mining byproducts such as gypsum and various
mine tailings, land reclamation and revegetation programs,
decommissioning of underground and surface operating
facilities, general clean-up activities aimed at returning
the areas to an environmentally acceptable condition, and
post-closure care and maintenance. The asset retirement
obligations are generally incurred over an extended period
of time. The estimation of asset retirement obligation costs
depends on the development of environmentally acceptable
closure and post-closure plans. In some cases, this may
require significant research and development to identify
preferred methods for such plans which are economically
sound and which, in most cases, may not be implemented for
several decades. The company has continued to utilize
appropriate technical resources, including outside
consultants, to develop specific site closure and
post-closure plans in accordance with the requirements of
the various jurisdictions in which it operates. The company
estimates that the undiscounted cash flows required to
settle the asset retirement obligations approximate
$2,040.0. The estimated cash flows have been discounted at
credit-adjusted risk-free rates ranging from 5.00 percent
to 6.75 percent. Other than certain land reclamation
programs, settlement of the obligations is typically
correlated with mine life estimates. Cash flow payments
are expected to occur principally over the next 75 years
for the companys phosphate operations. Payments relating
to most potash operations are not expected to occur until
after that time. The present value of the companys asset
retirement obligations at December 31, 2004 totalled $85.0
(2003  $81.6), as set out in the table below. The current
portion totalled $4.8 (2003  $3.5). Other environmental
liabilities typically relate to regulatory compliance,
environmental management associated with ongoing
operations other than mining, site assessment and
remediation of environmental contamination related to the
activities of the company and its predecessors, including waste disposal practices and ownership and
operations of real property and facilities. SITE ASSESSMENT AND REMEDIATION COSTS The company has accrued assessment costs, including legal
and consulting fees, and remediation costs related to the
clean-up of contaminated sites currently or formerly
associated with the company or its predecessors business
in the amount of $14.4 (2003  $14.9) for certain PCS
Joint Venture facilities, $0.3 (2003  $0.3) for various
sulfur facilities and $1.0 (2003  $2.0) for other matters
in the phosphate and nitrogen businesses. The current
portion of these costs totalled $14.7 (2003  $15.2). ENVIRONMENTAL OPERATING COSTS AND CAPITAL
EXPENDITURES The companys operating expenses, other than costs
associated with asset retirement obligations, relating to
compliance with environmental laws and regulations
governing ongoing operations
 were approximately $68.9 (2003  $59.0; 2002  $52.7). These amounts include
environmental operating expenses related primarily to the
production of phosphoric acid, fertilizer, feed and other
products. The company routinely undertakes environmental capital
projects. In 2004, capital expenditures of $7.6 (2003 
$12.1) were incurred to meet pollution prevention and
control objectives and $0.3 (2003  $0.3) were incurred to
meet other environmental objectives. Following is a reconciliation of asset retirement and
other environmental obligations as at December 31: 2004
    
    
    2003Asset retirement obligations,
beginning of year
    
    $
    81.6
    
    
    $
    83.0Liabilities incurred
    
    
    15.7
    
    
    
    14.4Liabilities settled
    
    
    (16.0
    )
    
    
    (14.4
    )Accretion expense
    
    
    5.2
    
    
    
    3.3Revisions in estimated cash flows
    
    
    (1.5
    )
    
    
    (4.7
    )Asset
retirement obligations, end of year
    
    
    85.0
    
    
    
    81.6Other environmental liabilities
    
    
    15.7
    
    
    
    18.4Less current
portion(Note 11)
    
    
    (19.5
    )
    
    
    (18.7
    )$
    81.2
    
    
    $
    81.3
  16.
    SHARE CAPITAL AUTHORIZED: The company is authorized to issue an unlimited number of
common shares without par value and an unlimited
number of first preferred shares. The first preferred
shares may be issued in one or more series with rights and
conditions to be determined by the Board of Directors. Issued:
    
    2004
    
    
    2003
    
    
    2002Consideration
    
    
    Consideration
    
    
    ConsiderationIssued, beginning of year
    
    $
    1,245.8
    
    
    $
    1,186.9
    
    
    $
    1,182.5Shares issued under option
    
    
    162.1
    
    
    
    58.7
    
    
    
    4.3Shares issued for dividend
reinvestment plan
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.1Issued, end of year
    
    $
    1,408.4
    
    
    $
    1,245.8
    
    
    $
    1,186.9
 Issued:
    
    2004
    
    
    2003
    
    
    2002Number of
    
    
    Number of
    
    
    Number ofCommon Shares
    
    
    Common Shares
    
    
    Common SharesIssued, beginning of year
    
    
    106,224,432
    
    
    
    104,155,296
    
    
    
    103,904,964Shares issued under option
    
    
    4,397,324
    
    
    
    2,061,700
    
    
    
    243,800Shares issued for dividend
reinvestment plan
    
    
    8,747
    
    
    
    7,436
    
    
    
    6,532Issued, end of year
    
    
    110,630,503
    
    
    
    106,224,432
    
    
    
    104,155,296
 On July 21, 2004, the Board of Directors of PCS approved a
split of the companys outstanding common shares on a
two-for-one basis. The stock split was effected in the
form of a stock dividend of one additional common share
for each share owned by shareholders of record at the
close of business on August 11, 2004. All equity-based
benefit plans and share data have been retroactively
adjusted to reflect the stock split.  17.
    CONTRIBUTED SURPLUS 2004
    
    
    2003
    
    
    2002Balance, beginning of year
    
    $
    265.2
    
    
    $
    264.2
    
    
    $
    264.2Stock-based compensation
    
    
    10.5
    
    
    
    1.0
    
    
    
    Balance, end of year
    
    $
    275.7
    
    
    $
    265.2
    
    
    $
    264.2




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##### 



71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts  18.
    SEGMENT INFORMATION The company has three reportable business segments: potash, phosphate and nitrogen. These business
segments are differentiated by the chemical nutrient contained in the product that each produces.
Inter-segment sales are made under terms that approximate market value. The accounting policies of
the segments are the same as those described in Note 2. 2004Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,056.1
    
    
    $
    977.9
    
    
    $
    1,210.4
    
    
    $
    
    
    
    $
    3,244.4Freight
    
    
    128.7
    
    
    
    71.9
    
    
    
    38.1
    
    
    
    
    
    
    
    238.7Transportation and distribution
    
    
    32.6
    
    
    
    29.4
    
    
    
    42.3
    
    
    
    
    
    
    
    104.3Net sales  third party
    
    
    894.8
    
    
    
    876.6
    
    
    
    1,130.0
    
    
    
    Cost of goods sold
    
    
    472.0
    
    
    
    860.8
    
    
    
    887.2
    
    
    
    
    
    
    
    2,220.0Gross Margin
    
    
    422.8
    
    
    
    15.8
    
    
    
    242.8
    
    
    
    
    
    
    
    681.4Inter-segment sales
    
    
    5.9
    
    
    
    12.1
    
    
    
    92.9
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    66.4
    
    
    
    84.4
    
    
    
    79.7
    
    
    
    9.5
    
    
    
    240.0Provision for PCS Yumbes
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,576.9
    
    
    
    1,532.9
    
    
    
    1,511.1
    
    
    
    505.9
    
    
    
    5,126.8Additions to property, plant and equipment
    
    
    92.2
    
    
    
    55.9
    
    
    
    63.0
    
    
    
    9.4
    
    
    
    220.52003Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    758.7
    
    
    $
    883.9
    
    
    $
    1,156.4
    
    
    $
    
    
    
    $
    2,799.0Freight
    
    
    109.9
    
    
    
    75.8
    
    
    
    48.8
    
    
    
    
    
    
    
    234.5Transportation and distribution
    
    
    29.7
    
    
    
    26.2
    
    
    
    42.8
    
    
    
    
    
    
    
    98.7Net sales  third party
    
    
    619.1
    
    
    
    781.9
    
    
    
    1,064.8
    
    
    
    Cost of goods sold
    
    
    415.4
    
    
    
    798.4
    
    
    
    871.6
    
    
    
    
    
    
    
    2,085.4Gross Margin
    
    
    203.7
    
    
    
    (16.5
    )
    
    
    193.2
    
    
    
    
    
    
    
    380.4Inter-segment sales
    
    
    6.0
    
    
    
    9.4
    
    
    
    67.8
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    52.4
    
    
    
    75.7
    
    
    
    89.6
    
    
    
    9.7
    
    
    
    227.4Provision for plant shutdowns
    
    
    
    
    
    
    4.9
    
    
    
    118.8
    
    
    
    
    
    
    
    123.7Provision for PCS Yumbes
    
    
    140.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140.5Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,240.1
    
    
    
    1,541.3
    
    
    
    1,479.1
    
    
    
    306.8
    
    
    
    4,567.3Additions to property, plant and equipment
    
    
    50.9
    
    
    
    51.0
    
    
    
    44.1
    
    
    
    4.7
    
    
    
    150.72002Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    669.0
    
    
    $
    714.0
    
    
    $
    841.4
    
    
    $
    
    
    
    $
    2,224.4Freight
    
    
    99.9
    
    
    
    58.8
    
    
    
    56.5
    
    
    
    
    
    
    
    215.2Transportation and distribution
    
    
    24.6
    
    
    
    18.4
    
    
    
    37.5
    
    
    
    
    
    
    
    80.5Net sales  third party
    
    
    544.5
    
    
    
    636.8
    
    
    
    747.4
    
    
    
    Cost of goods sold
    
    
    326.5
    
    
    
    594.9
    
    
    
    700.0
    
    
    
    
    
    
    
    1,621.4Gross Margin
    
    
    218.0
    
    
    
    41.9
    
    
    
    47.4
    
    
    
    
    
    
    
    307.3Inter-segment sales
    
    
    6.4
    
    
    
    6.4
    
    
    
    24.6
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    46.3
    
    
    
    76.8
    
    
    
    88.0
    
    
    
    8.0
    
    
    
    219.1Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,198.4
    
    
    
    1,577.0
    
    
    
    1,602.4
    
    
    
    307.8
    
    
    
    4,685.6Additions to property, plant and equipment
    
    
    35.5
    
    
    
    126.3
    
    
    
    47.0
    
    
    
    3.4
    
    
    
    212.2




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##### 



72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts  18.
    SEGMENT INFORMATION (CONTINUED) As described in Note 1, PhosChem and Canpotex execute marketing and sales for certain of the
companys offshore sales. Financial information by geographic area is summarized in the following
table: Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2004Sales to customers outside the companyCanada
    
    $
    48.3
    
    
    $
    87.5
    
    
    $
    
    
    
    $
    
    
    
    $
    135.8United States
    
    
    443.0
    
    
    
    1,383.7
    
    
    
    413.1
    
    
    
    2.8
    
    
    
    2,242.6PhosChem
    
    
    
    
    
    
    140.4
    
    
    
    
    
    
    
    
    
    
    
    140.4Canpotex
    
    
    421.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421.9Other
    
    
    114.9
    
    
    
    57.3
    
    
    
    86.1
    
    
    
    45.4
    
    
    
    303.7$
    1,028.1
    
    
    $
    1,668.9
    
    
    $
    499.2
    
    
    $
    48.2
    
    
    $
    3,244.4Operating income
    
    $
    250.0
    
    
    $
    67.8
    
    
    $
    139.8
    
    
    $
    56.7
    
    
    $
    514.3Capital assets and goodwill
    
    $
    831.2
    
    
    $
    1,722.6
    
    
    $
    601.4
    
    
    $
    40.7
    
    
    $
    3,195.9Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2003Sales to customers outside the companyCanada
    
    $
    41.1
    
    
    $
    91.4
    
    
    $
    
    
    
    $
    
    
    
    $
    132.5United States
    
    
    314.9
    
    
    
    1,392.4
    
    
    
    350.6
    
    
    
    11.7
    
    
    
    2,069.6PhosChem
    
    
    
    
    
    
    87.0
    
    
    
    
    
    
    
    
    
    
    
    87.0Canpotex
    
    
    260.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260.6Other
    
    
    96.8
    
    
    
    58.9
    
    
    
    49.0
    
    
    
    44.6
    
    
    
    249.3$
    713.4
    
    
    $
    1,629.7
    
    
    $
    399.6
    
    
    $
    56.3
    
    
    $
    2,799.0Operating income (loss)
    
    $
    97.8
    
    
    $
    (82.7
    )
    
    $
    91.4
    
    
    $
    (162.1
    )
    
    $
    (55.6
    )Capital assets and goodwill
    
    $
    786.2
    
    
    $
    1,745.6
    
    
    $
    604.7
    
    
    $
    68.6
    
    
    $
    3,205.1Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2002Sales to customers outside the companyCanada
    
    $
    27.8
    
    
    $
    79.1
    
    
    $
    
    
    
    $
    
    
    
    $
    106.9United States
    
    
    301.8
    
    
    
    1,099.5
    
    
    
    209.6
    
    
    
    9.0
    
    
    
    1,619.9PhosChem
    
    
    
    
    
    
    37.6
    
    
    
    
    
    
    
    
    
    
    
    37.6Canpotex
    
    
    241.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241.2Other
    
    
    73.0
    
    
    
    67.4
    
    
    
    49.4
    
    
    
    29.0
    
    
    
    218.8$
    643.8
    
    
    $
    1,283.6
    
    
    $
    259.0
    
    
    $
    38.0
    
    
    $
    2,224.4Operating income (loss)
    
    $
    145.6
    
    
    $
    17.8
    
    
    $
    20.5
    
    
    $
    (17.0
    )
    
    $
    166.9Capital assets and goodwill
    
    $
    778.0
    
    
    $
    1,875.3
    
    
    $
    627.9
    
    
    $
    85.7
    
    
    $
    3,366.9
  19.
    COST OF GOODS SOLD The primary components of
cost of goods sold are labor, employee benefits, services, raw materials
(including inbound freight and purchasing and receiving costs),
operating supplies, energy
costs, property and miscellaneous taxes, and depreciation and amortization.  20.
    SELLING AND ADMINISTRATIVE The primary components of selling and administrative are compensation, employee benefits, supplies,
communications, travel, professional services and depreciation and amortization.  21.
    PROVINCIAL MINING AND OTHER TAXES Provincial mining and other taxes consist of: 2004
    
    
    2003
    
    
    2002Potash Production Tax
    
    $
    63.7
    
    
    $
    35.8
    
    
    $
    47.7Saskatchewan corporate capital taxes and other
    
    
    28.9
    
    
    
    21.2
    
    
    
    20.3$
    92.6
    
    
    $
    57.0
    
    
    $
    68.0




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##### 



73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  22.
    PROVISION FOR PLANT SHUTDOWNS MEMPHIS AND GEISMAR NITROGEN OPERATIONS  2003 In June 2003, the company indefinitely shut down its
Memphis, Tennessee plant and suspended production of
ammonia and nitrogen solutions at its Geismar, Louisiana
facilities due to high US natural gas costs and low
product margins. The operations have not been restarted. The company determined that all employee
positions pertaining to the affected operations would be
eliminated, and recorded $4.8 in connection with costs of
special termination benefits in 2003. The number of
employees terminated as a result of the shutdowns was
187, of whom 186 had left the company as of December 31, 2004. The company has made payments relating to the
terminations totalling $4.4 and expects to pay the
remainder in 2005. In connection with the shutdowns, management had
determined that the carrying amounts of the long-lived
assets at the Memphis and Geismar nitrogen facilities were
not fully recoverable, and an impairment loss of
$101.6, equal to the amount by which the carrying amount of
the facilities asset groups exceeded their respective
fair values, was recognized. Of the total impairment
charge, $100.6 related to property, plant and equipment and
$1.0 related to other assets. As part of its review,
management also wrote down certain parts inventories at
these plants in the amount of $12.4. In addition to the costs described above, management
expects to incur other shutdown-related costs of
approximately $12.1 and nominal annual expenditures for
site security and other maintenance costs. The other
shutdown-related costs have not been recorded in the
consolidated financial statements as of December 31, 2004. Such costs will be recognized and recorded in the
period in which they are incurred.
 KINSTON PHOSPHATE FEED PLANT  2003 The phosphate feed plant at
Kinston, North Carolina ceased
operations in 2003. In that year, the company recorded
$0.6 for costs of special termination benefits, $0.3 for
parts inventory writedowns and $4.0 for long-lived asset
impairment charges. The Kinston property was sold in 2004 for nominal
proceeds. There was no significant gain or loss on sale. No additional significant costs were incurred in
connection with the plant shutdowns in 2004. The following
table summarizes, by reportable segment, the total costs
incurred to date and the total costs expected to be
incurred in connection with the plant shutdowns described
above: Costs
    
    
    Total CostsIncurred
    
    
    Expected toto Date
    
    
    Be IncurredNitrogen SegmentEmployee termination and related benefits
    
    $
    4.8
    
    
    $
    4.8Writedown of parts inventory
    
    
    12.4
    
    
    
    12.4Asset impairment charges
    
    
    101.6
    
    
    
    101.6Other related exit costs
    
    
    
    
    
    
    12.1118.8
    
    
    
    130.9Phosphate SegmentEmployee termination and related benefits
    
    
    0.6
    
    
    
    0.6Writedown of parts inventory
    
    
    0.3
    
    
    
    0.3Asset impairment charges
    
    
    4.0
    
    
    
    4.04.9
    
    
    
    4.9$
    123.7
    
    
    $
    135.8
 Fair value for purposes of all impairment measurements was
determined based on discounted expected future net cash
flows.
   The following table summarizes, by reportable segment, the costs accrued as of December 31, 2004 in
connection with the plant shutdowns described above: Accrued Balance
    
    
    Cash Payments
    
    
    Accrued BalanceDecember 31, 2003
    
    
    and Adjustments
    
    
    December 31, 2004Nitrogen SegmentEmployee termination and related benefits
    
    $
    2.1
    
    
    $
    (1.7
    )
    
    $
    0.4Phosphate SegmentEmployee termination and related benefits
    
    
    0.5
    
    
    
    (0.5
    )
    
    
    $
    2.6
    
    
    $
    (2.2
    )
    
    $
    0.4
 The accrued balance is included in accounts payable and accrued charges in the Consolidated
Statement of Financial Position as of December 31, 2004.  23.
    PROVISION FOR PCS YUMBES S.C.M. 2004 In December 2004, the company concluded the sale of 100 percent of its shares of PCS Yumbes to
SQM. Acquired by the company in 1999, PCS Yumbes holds mining concessions on certain sodium nitrate
deposits in the Atacama Desert in northern Chile and is a producer of
potassium nitrate, sodium
nitrate and iodine. Proceeds pursuant to the agreement totalled
$42.3, including certain working capital adjustments of $6.2 and contingent consideration of $1.1. The company
received $34.5 of the sale price prior to the end of the year. The
total gain on sale was $3.5, of
which $2.6 has been recognized in 2004. The deferred portion of the gain will be recognized in
earnings in proportion to any future dilution or sale of part or all of the companys interest in
SQM. During the year, the company
recorded an additional writedown of $6.2, relating primarily to certain
mining machinery and equipment that was not transferred to SQM under the terms of the agreement and
that management plans to sell prior to the end of 2005. As of
December 31, 2004, the fair value and
carrying amount of the machinery and equipment that remained to be sold was $0.5. For measurement
purposes, fair value was determined in reference to market prices for similar assets.




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##### 



74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  23.
    PROVISION FOR PCS YUMBES S.C.M. (CONTINUED) 2003 In 2003, in connection with entering into the share purchase (and related) agreement with
SQM, management conducted an assessment of the recoverability of the long-lived assets of the PCS
Yumbes operations. As a result of its review, management determined that the carrying amounts of PCS
Yumbes long-lived assets were not recoverable and recorded an
impairment charge of $77.4, equal to
the amount by which the carrying amount of the asset group exceeded fair value. Of the total
impairment charge, $13.0 related to property, plant and equipment, $63.9 related to deferred
pre-production costs and $0.5 related to deferred acquisition costs. For purposes of the impairment
measurement, fair value was determined in reference to the commercial agreement referred to
above. As part of the review, management also wrote down certain non-parts inventory by $50.2 due to
the need to liquidate all inventories that would not be transferred to SQM under the agreement. The company recorded a provision of $1.8 in 2003 pertaining to contractual termination benefits to
be paid to employees, primarily under Chilean law. The company had also incurred early termination
penalties in respect of certain PCS Yumbes contractual arrangements and recorded a provision of
$11.1 in 2003 for these contract termination costs. The following table summarizes the amounts recognized during 2004 and 2003 in connection with PCS
Yumbes: AmountsCumulative to
    
    
    RecognizedDecember 31, 2003
    
    
    in 2004
    
    
    TotalPotash SegmentContract termination costs
    
    $
    11.1
    
    
    $
    
    
    
    $
    11.1Employee termination and related benefits
    
    
    1.8
    
    
    
    
    
    
    
    1.8Writedown of non-parts inventory
    
    
    50.2
    
    
    
    
    
    
    
    50.2Asset impairment charges
    
    
    77.4
    
    
    
    6.2
    
    
    
    83.6Gain on sale
    
    
    
    
    
    
    (2.6
    )
    
    
    (2.6
    )$
    140.5
    
    
    $
    3.6
    
    
    $
    144.1
 The following table
summarizes the costs accrued as of December 31, 2004 in connection with PCS
Yumbes as described above: Accrued Balance
    
    
    Costs Incurred
    
    
    Cash Payments
    
    
    Non-cash
    
    
    Accrued BalanceDecember 31, 2003
    
    
    During 2004
    
    
    and Adjustments
    
    
    Settlements
    
    
    December 31, 2004Potash SegmentContract termination costs
    
    $
    0.6
    
    
    $
    
    
    
    $
    (0.6
    )
    
    $
    
    
    
    $
    Employee termination and related benefits
    
    
    1.2
    
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    Asset impairment charges
    
    
    
    
    
    
    6.2
    
    
    
    
    
    
    
    (6.2
    )
    
    
    $
    1.8
    
    
    $
    6.2
    
    
    $
    (1.8
    )
    
    $
    (6.2
    )
    
    $
    
  24.
    OTHER INCOME 2004
    
    
    2003
    
    
    2002Share of earnings of equity investees
    
    $
    30.9
    
    
    $
    12.4
    
    
    $
    5.3Dividend income
    
    
    8.2
    
    
    
    5.6
    
    
    
    7.7Gain on sale
of long-term investments (Note 4)
    
    
    34.4
    
    
    
    
    
    
    
    Other
    
    
    5.9
    
    
    
    15.2
    
    
    
    11.8$
    79.4
    
    
    $
    33.2
    
    
    $
    24.8
  25.
    INTEREST EXPENSE 2004
    
    
    2003
    
    
    2002Interest (income) expense onShort-term debt and cash and cash equivalents
    
    $
    (1.8
    )
    
    $
    3.6
    
    
    $
    8.0Long-term debt
    
    
    85.8
    
    
    
    87.7
    
    
    
    75.1$
    84.0
    
    
    $
    91.3
    
    
    $
    83.1




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##### 



75 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts  26.
    INCOME TAXES As the company operates in a specialized industry and in several tax jurisdictions, its income is
subject to various rates of taxation. The provision for income taxes differs from the amount that would have resulted from applying the
Canadian statutory income tax rates to income (loss) before income taxes as follows: 2004
    
    
    2003
    
    
    2002Income (loss) before income taxesCanada
    
    $
    175.0
    
    
    $
    16.3
    
    
    $
    56.8United States
    
    
    69.1
    
    
    
    (86.3
    )
    
    
    21.5Trinidad
    
    
    118.5
    
    
    
    80.6
    
    
    
    20.5Other
    
    
    67.7
    
    
    
    (157.5
    )
    
    
    (15.0
    )$
    430.3
    
    
    $
    (146.9
    )
    
    $
    83.8Federal and provincial statutory tax rates
    
    
    43.36%
    
    
    
    44.36%
    
    
    
    46.12%Tax at statutory rates
    
    $
    186.6
    
    
    $
    (65.2
    )
    
    $
    38.7Adjusted for the effect of:Writedown of PCS Yumbes
    
    
    1.4
    
    
    
    50.8
    
    
    
    Gain on sale of long-term investments
    
    
    (14.9
    )
    
    
    
    
    
    
    Net non-deductible provincial taxes and royalties and resource allowances
    
    
    8.1
    
    
    
    7.5
    
    
    
    10.2Stock-based compensation deduction
    
    
    (17.1
    )
    
    
    (5.4
    )
    
    
    Additional tax deductions
    
    
    (11.0
    )
    
    
    (11.8
    )
    
    
    (18.6
    )Difference between Canadian rate and rates applicable to subsidiaries in other countries
    
    
    (26.7
    )
    
    
    4.4
    
    
    
    0.8Other
    
    
    5.3
    
    
    
    (0.9
    )
    
    
    (0.9
    )Income tax expense (recovery)
    
    $
    131.7
    
    
    $
    (20.6
    )
    
    $
    30.2
  Details of income tax expense (recovery) are as follows: 2004
    
    
    2003
    
    
    2002CanadaCurrent
    
    $
    69.4
    
    
    $
    14.9
    
    
    $
    46.2Future
    
    
    11.5
    
    
    
    20.6
    
    
    
    (10.1
    )United States  FederalCurrent
    
    
    14.7
    
    
    
    (16.4
    )
    
    
    (27.5
    )Future
    
    
    (19.4
    )
    
    
    (40.7
    )
    
    
    19.2United States  StateCurrent
    
    
    2.2
    
    
    
    (0.6
    )
    
    
    1.6Future
    
    
    12.5
    
    
    
    (8.5
    )
    
    
    (1.5
    )Trinidad and otherCurrent
    
    
    19.1
    
    
    
    2.1
    
    
    
    3.9Future
    
    
    21.7
    
    
    
    8.0
    
    
    
    (1.6
    )Income tax expense (recovery)
    
    $
    131.7
    
    
    $
    (20.6
    )
    
    $
    30.2
 The tax effects of temporary differences that give rise to
significant portions of the net future income tax
liability are: 2004
    
    
    2003Future income tax assets:Loss and credit carryforwards
    
    $
    294.2
    
    
    $
    271.3Post-retirement/post-employment benefits
    
    
    78.3
    
    
    
    55.2Accrued environmental costs and
assetretirement obligations
    
    
    0.9
    
    
    
    4.0Other
    
    
    31.8
    
    
    
    29.5Total future income tax assets
    
    
    405.2
    
    
    
    360.0Future income tax liabilities:Basis difference in fixed assets
    
    
    814.3
    
    
    
    806.1Basis difference in investments
    
    
    27.6
    
    
    
    Other
    
    
    62.7
    
    
    
    38.1Total future income tax liabilities
    
    
    904.6
    
    
    
    844.2Net future income tax liability
    
    $
    499.4
    
    
    $
    484.2
 Earnings of certain international subsidiaries would be
taxed upon their repatriation. The company has not
recognized a future income tax liability for these
undistributed earnings as it does not currently expect
them to be repatriated. Taxes that would be payable, at
existing tax rates, if all foreign subsidiaries
accumulated unremitted earnings were repatriated as at
December 31, 2004 are estimated to be $30.3. At December 31, 2004, the company has income tax losses
carried forward of approximately $644.9 which will begin
to expire in 2010. In addition, the company has alternative
minimum tax credits of approximately $0.2 which carry
forward indefinitely. The benefit relating to these
amounts has been recognized by reducing future income tax
liabilities.  27.
    NET INCOME (LOSS) PER SHARE 2004
    
    
    2003
    
    
    2002Basic net income (loss) per shareNet income
(loss) available
to common shareholders
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Weighted average number
of common shares
    
    107,967,000
    
    
    104,460,000
    
    
    104,042,000Basic net income (loss)
per share
    
    $
    2.77
    
    
    $
    (1.21
    )
    
    $
    0.52Diluted net income (loss) per shareNet income (loss) available
to common shareholders
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Weighted average number
of common shares
    
    107,967,000
    
    
    104,460,000
    
    
    104,042,000Dilutive effect of
stock options
    
    2,772,000
    
    
    
    
    
    590,000Weighted average number
of diluted common shares
    
    110,739,000
    
    
    104,460,000
    
    
    104,632,000Diluted net income (loss)
per share
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51




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##### 



76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  27.
    NET INCOME (LOSS) PER SHARE (CONTINUED) Diluted net income (loss) per share is calculated based on
the weighted average number of shares issued and
outstanding during the year. The denominator is: (i) increased by the total of the additional common shares
that would have been issued assuming exercise of all stock
options with exercise prices at or below the average
market price for the year; and (ii) decreased by the number
of shares that the company could have repurchased if it
had used the proceeds from the exercise of stock options
to repurchase them on the open market at the average share
price for the year. For years in which there was a loss
applicable to common shares, stock options with exercise
prices at or below the average market price for the year
were excluded from the calculations of diluted net loss
per share, as inclusion of these securities would have been
anti-dilutive to the net loss per share. Excluded from the calculation of diluted net income (loss)
per share were average options outstanding of NIL (2003 
2,239,861; 2002  4,230,525) as the options exercise price
was greater than the average market price of the common
shares for the year. All per-share data have been retroactively adjusted to
reflect the stock split described in Note 16.  28.
    STOCK-BASED COMPENSATION The company has four stock-based compensation plans, which
are described below. The company accounts for its grants
under those plans in accordance with the fair value based
method of accounting for stock-based compensation. The
compensation cost that has been charged against income for
those plans was $35.3 (2003  $6.6; 2002  $5.7). STOCK OPTION PLANS The company has two option
plans. Under the Officers and
Employees Plan, the company may, after February 3, 1998, issue
up to 13,852,250 common shares pursuant to the exercise of
options.
 Under the Directors Plan, the
company may, after January 24, 1995, issue up to 912,000 common shares pursuant to the exercise of options. Under both plans, the
exercise price is the quoted market closing price of the
companys common shares on the last trading day
immediately preceding the date of the grant, and an
options maximum term is 10 years. All options granted to
date have provided that one-half of the options granted in
a year will vest one year from the date of the grant, with
the other half of the options vesting the following year. The company did not grant any
stock options in 2004. A
summary of the status of the plans as of December 31,
2004, 2003 and 2002 and changes during the years ending on
those dates is presented as follows: Number of Shares Subject to Option 2004
    
    
    2003
    
    
    2002Outstanding, beginning
of year
    
    
    10,876,022
    
    
    
    11,638,750
    
    
    
    10,088,550Granted
    
    
    
    
    
    
    1,399,072
    
    
    
    1,815,200Exercised
    
    
    (4,397,324
    )
    
    
    (2,061,700
    )
    
    
    (243,800
    )Cancelled
    
    
    (77,968
    )
    
    
    (100,100
    )
    
    
    (21,200
    )Outstanding, end of year
    
    
    6,400,730
    
    
    
    10,876,022
    
    
    
    11,638,750
 Weighted Average Exercise Price 2004
    
    
    2003
    
    
    2002Outstanding, beginning
of year
    
    $
    34.70
    
    
    $
    32.99
    
    
    $
    32.61Granted
    
    
    
    
    
    
    39.50
    
    
    
    33.25Exercised
    
    
    34.34
    
    
    
    28.28
    
    
    
    17.47Cancelled
    
    
    38.78
    
    
    
    35.41
    
    
    
    39.20Outstanding, end of year
    
    
    34.97
    
    
    
    34.70
    
    
    
    32.99
 The weighted average grant-date fair value of options
granted during the year was $NIL (2003  $15.7; 2002 
$20.1).
   The following table
summarizes information about stock options outstanding at December 31, 2004: Options Outstanding
    
    
    Options ExercisableRange of
    
    Number
    
    
    Weighted Average
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise Prices
    
    Outstanding
    
    
    Remaining Life
    
    
    Exercise Price
    
    
    Number
    
    
    Exercise Price$21.84
    
    
    287,500
    
    
    
    5 years
    
    
    $
    21.84
    
    
    
    287,500
    
    
    $
    21.84$30.64
    
    
    698,200
    
    
    
    6 years
    
    
    
    30.64
    
    
    
    698,200
    
    
    
    30.64$29.04 to $32.69
    
    
    855,500
    
    
    
    7 years
    
    
    
    31.45
    
    
    
    855,500
    
    
    
    31.45$33.25
    
    
    1,208,350
    
    
    
    8 years
    
    
    
    33.25
    
    
    
    1,208,350
    
    
    
    33.25$33.94
    
    
    733,600
    
    
    
    4 years
    
    
    
    33.94
    
    
    
    733,600
    
    
    
    33.94$35.19 to $37.38
    
    
    626,400
    
    
    
    1.5 years
    
    
    
    36.18
    
    
    
    626,400
    
    
    
    36.18$39.50
    
    
    1,250,320
    
    
    
    9 years
    
    
    
    39.50
    
    
    
    574,400
    
    
    
    39.50$40.88 to $43.38
    
    
    740,860
    
    
    
    3 years
    
    
    
    43.33
    
    
    
    740,860
    
    
    
    43.336,400,730
    
    
    
    6 years
    
    
    $
    34.97
    
    
    
    5,724,810
    
    
    $
    34.43
 The foregoing options have
expiry dates ranging from November 7, 2005 to November 20, 2013. Prior to 2003, the company applied the intrinsic value based method of accounting for the plans.
Effective December 15, 2003, the company adopted the fair value based method of accounting for
stock options prospectively to all employee awards granted, modified or settled after January 1,
2003. Since the companys stock option awards vest over two years, the compensation cost included
in the determination of net income (loss) for years ended
December 31, 2004 and 2003 is less than
that which would have been recognized if the fair value based method had been applied to all awards
since the original effective date of CICA Section 3870, Stock-based Compensation and Other
Stock-based Payments. The following table illustrates the effect on net income (loss) and the
related per-share amount if the fair value based method had been applied to all outstanding and
unvested awards in each period.




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##### 



77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US
Dollars except share and per-share amounts  28.
    STOCK-BASED COMPENSATION (CONTINUED) 2004
    
    
    2003
    
    
    2002Net income (loss)  as reported
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Add:      Stock-based employee compensation expense included in reported
net income(loss), net of related tax effects
    
    
    8.8
    
    
    
    0.8
    
    
    
    Deduct: Total stock-based employee compensation expense determined under
fair value
    
    
    (12.8
    )
    
    
    (14.8
    )
    
    
    (14.3
    )based method for all option awards, net of relatedtax effectsNet income (loss)  pro forma (1)
    
    $
    294.6
    
    
    $
    (140.3
    )
    
    $
    39.3
 (1)
 2004
    
    
    2003
    
    
    2002Basic net income (loss) per shareAs reported
    
    $
    2.77
    
    
    $
    (1.21
    )
    
    $
    0.52Pro forma
    
    
    2.73
    
    
    
    (1.34
    )
    
    
    0.38Diluted net income (loss) per shareAs reported
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51Pro forma
    
    
    2.66
    
    
    
    (1.34
    )
    
    
    0.38
  In calculating the foregoing
pro forma amounts, the fair
value of each option grant was estimated as of the date of
grant using the modified Black-Scholes option-pricing
model with the following weighted-average assumptions: Year of Grant2003
    
    
    2002
    
    
    2001Expected dividend
    

    $0.50
    
    


    $0.50
    
    

    $0.50Expected volatility
    
    
    27%
    
    
    
    32%
    
    
    
    32%Risk-free interest rate
    
    
    4.06%
    
    
    
    4.13%
    
    
    
    4.54%Expected life of options
    
    8 years
    
    
    8 years
    
    
    8 yearsExpected forfeitures
    
    
    16%
    
    
    
    10%
    
    
    
    10%
 DEFERRED SHARE UNIT AND OTHER PLANS The company offers a deferred share unit plan to
non-employee directors, which entitles those directors to
receive discretionary grants of deferred share units
(DSUs), each of which has a value equal to the market value
of a common share at the time of its grant. The plan also
allows each director to choose to receive, in the form of
DSUs, all or a percentage of the directors fee, which would
otherwise be payable in cash. Each DSU fully vests upon
award, but is distributed only when the director has ceased
to be a member of the Board of Directors of the
company. Vested units are settled in cash based on the
common share price at that time. As of December 31, 2004,
the total DSUs held by participating directors was 50,999
(2003  35,906; 2002  20,526). The company offers a long-term incentive plan to senior
executives and other key employees. The performance
objectives under the plan are designed to further align
the interests of executives and key employees with those
of shareholders by linking the vesting of awards to the
total return to shareholders over the three-year
performance period ending December 31, 2005. Total
shareholder return measures the capital appreciation in
the companys common shares, including dividends paid over
the performance period. Vesting of one-half of the awards
is based on increases in the total shareholder return over
the three-year performance period. Vesting of the remaining
one-half of the awards is based on the extent to which the
total shareholder return matches or exceeds the total
shareholder return of the common shares of a pre-defined
peer group. Vested units are settled in cash based on the
common share price generally at the end of the performance
period.
 Compensation expense for this program is recorded over the
three-year performance cycle of the program. The amount of
compensation expense is adjusted over the three-year
performance cycle to reflect the current market value of
common shares and the number of shares vested in
accordance with the vesting schedule based upon total
shareholder return and such return compared to the
companys peer group.  29.
    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The company uses financial instruments, including foreign
currency forward contracts, futures, swaps and option
agreements, to manage foreign exchange, interest rate and
commodity price risk. These hedging derivatives represent off-balance sheet items, since these derivatives are not recorded at fair value on the Consolidated
Statements of Financial Position. The company manages interest rate exposures by using a
diversified portfolio of fixed and floating rate
instruments. The companys sensitivity to fluctuations in
interest rates is substantially limited to certain of its
cash and cash equivalents, short-term debt and long-term
debt. In January and February 2004, the company entered into
interest rate swap contracts designated as fair value
hedges that effectively converted a notional amount of
$300.0 of fixed rate debt (due 2011) into floating rate
debt based on six-month US dollar LIBOR rates. Net
settlements on the swap instruments have been recorded as
adjustments to interest expense. In October 2004, the
company terminated the interest rate swap contracts for
cash proceeds of $3.0 and a gain of $0.8. Hedge accounting
was discontinued prospectively and the associated gain is
being amortized over the remaining term of the debt as a
reduction to interest expense. The company did not enter
into any interest rate swap contracts in 2003. In addition to physical spot and term purchases, the
company at times employs futures, swaps and option
agreements to establish the cost on a portion of its
natural gas requirements. These instruments are intended to
hedge the future cost of the committed and anticipated
natural gas purchases for its US nitrogen and phosphate
plants. Under these arrangements, the company receives or
makes payments based on the differential between a
specified price and the actual spot price of natural
gas. The company has certain available lines of credit
which are utilized to reduce cash margin requirements to
maintain the derivatives. At




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##### 



78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  29.
    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) December 31, 2004, the company had collected cash margin
requirements of $28.5 (2003  $4.3) which were included in
accounts payable. As at December 31, 2004, the company had derivatives
qualifying for deferral in the form of futures and swaps.
The futures represented a notional amount of 2.8 MMBtu of
natural gas with maturities in 2005. The swaps represented
a notional amount of 91.4 MMBtu with maturities in 2005
through 2014. As at December 31, 2004, deferred losses from
settled hedging transactions were $3.0 (2003  $2.7). As at December 31, 2004, the company had entered into
foreign currency forward contracts to sell US dollars and
receive Canadian dollars in the notional amount of $54.1
(2003  $46.0) at an average exchange rate of 1.2306 (2003
 1.3315). The company also had small forward contracts
outstanding as at December 31, 2004 to reduce exposure to
the euro and Swiss franc. The notional amounts of the
companys derivatives do not represent assets or
liabilities and therefore are not reflected in the
Consolidated Statements of Financial Position. Maturity
dates for all forward contracts are within 2005. The company is exposed to credit-related losses in the
event of non-performance by counterparties to derivative
financial instruments. The company anticipates, however,
that counterparties will be able to fully satisfy their
obligations under the contracts. The major concentration of credit risk arises from the
companys receivables. A majority of its sales are in
North America and are primarily for use in the
agricultural industry. The company seeks to manage the
credit risk relating to these sales through a credit
management program. Internationally, the companys
products are sold primarily through two export
associations whose accounts receivable are substantially
insured or secured by letters of credit. FAIR VALUE Fair value represents point-in-time estimates that may
change in subsequent reporting periods due to market conditions or other factors. The estimated fair values disclosed below are designed to approximate amounts at
which the financial instruments could be exchanged in a
current transaction between willing parties. However, some
financial instruments lack an available trading market and
therefore certain fair values are based on estimates using
net present value and other valuation techniques, which
are significantly affected by assumptions as to the amount
and timing of estimated future cash flows and discount
rates, all of which reflect varying degrees of risk. Due to their short-term nature, the fair value of cash and
cash equivalents, accounts receivable, short-term debt, and
accounts payable and accrued charges is assumed to
approximate carrying value. The fair value of the companys
gas hedging contracts at December 31, 2004 approximated
$66.5 (2003  $59.8). Futures contracts are
exchange-traded and fair value was determined based on
exchange prices. Swaps and option agreements are traded in
the over-the-counter market and fair value was calculated
based on a price that was converted to an
exchange-equivalent price. The fair value of the companys
notes payable at December 31, 2004 approximated $1,383.2
(2003  $1,417.8) and reflects a current yield valuation
based on observed market prices. The fair value of the
companys other long-term debt instruments approximated
carrying value.
 30.
    CONTINGENCIES CANPOTEX PotashCorp is a shareholder in Canpotex which markets
potash offshore. Should any operating losses or other
liabilities be incurred by Canpotex, the shareholders have
contractually agreed to reimburse Canpotex for such losses
or liabilities in proportion to their productive capacity.
There were no such operating losses or other liabilities
in 2004, 2003 or 2002. MINING RISK In common with other
companies in the industry, the company
is unable to acquire insurance for underground assets. INVESTMENT IN APC The terms of a shareholders agreement with Jordan
Investment Company (JIC) provide that, from October
17, 2006 to October 16, 2009, JIC may seek to exercise a put
option (the Put) to require the company to purchase
JICs remaining common shares in APC. If the Put were exercised, the companys purchase price would be
calculated in accordance with a specified formula based, in
part, on future earnings of APC. The amount, if any, which
the company may have to pay for JICs remaining common
shares if there was to be a valid exercise of the Put is
not presently determinable. LEGAL AND OTHER MATTERS In 1998, the company, along
with other parties, was notified
by the US Environmental Protection Agency (EPA) of
potential liability under the US federal Comprehensive
Environmental Response, Compensation and Liability Act of
1980 (CERCLA) with respect to certain soil and
groundwater conditions at a PCS Joint Venture blending
facility in Lakeland, Florida and certain adjoining
property. In 1999, PCS Joint Venture signed an
Administrative Order on Consent with EPA pursuant to which
PCS Joint Venture agreed to conduct a Remedial
Investigation and Feasibility Study (RI/FS) of these
conditions. PCS Joint Venture and another party are
sharing the costs of the RI/FS. The draft feasibility study
has been submitted for review and approval, and selection
of a remedy is projected to occur some time in 2005. No
final determination has yet been made of the nature, timing
or cost of remedial action that may be needed, nor to what
extent costs incurred may be recoverable from third
parties. In 1994, PCS Joint Venture responded to information
requests from the EPA and the Georgia Department of
Natural Resources, Environmental Protection Division
(GEPD), regarding conditions at its Moultrie, Georgia
location. PCS Joint Venture believes that the
lead-contaminated soil and groundwater found at the site
is attributable to former operations at the site prior to
PCS Joint Ventures ownership. PCS Joint Venture initially
submitted a proposed Corrective Action Plan to GEPD in
1999, which has now been revised several times in response
to GEPD comments. PCS Joint Venture has also conducted and
submitted an assessment of the site. Based on its review
of the assessment and the Corrective Action Plan, GEPD has
expressed its opinion that remediation of the site will
require some excavation and off-site disposal of impacted
soil and installation of a groundwater recovery and
treatment system. The company has continued discussions
with GEPD regarding a remedial plan for the site. In 2003, EPA notified PCS Nitrogen that it considered PCS
Nitrogen to be a potentially responsible party with
respect to a former fertilizer




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##### 



79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  30.
    CONTINGENCIES (CONTINUED) blending operation in South Carolina formerly owned by a
company from which PCS Nitrogen acquired certain other
assets. It is the companys understanding that EPA is
conducting an assessment of conditions at the site and
intends to propose a remedial plan for the site in the
coming year. The company intends to continue to assert its
position that it is not a responsible party. The company is
also engaged in ongoing site assessment and/or remediation
activities at a number of other facilities and sites.
Based on current information, it believes that its future
obligations with respect to these facilities and sites
will not have a material adverse effect on the companys
consolidated financial position or results of operations. The breadth of the companys operations and the global
complexity of tax regulations require assessments of
uncertainties and judgments in estimating the ultimate
taxes the company will pay. The final taxes paid are
dependent upon many factors, including negotiations with
taxing authorities in various jurisdictions, outcomes of
tax litigation and resolution of disputes arising from
federal, provincial, state and local tax audits. The
resolution of these uncertainties and the associated final
taxes may result in adjustments to the companys tax
assets and tax liabilities. Various other claims and lawsuits are pending against the
company in the ordinary course of business. While it is not
possible to determine the ultimate outcome of such actions
at this time, and there exist inherent uncertainties in
predicting such outcomes, it is managements belief that
the ultimate resolution of such actions will not have a
material adverse effect on the companys consolidated
financial position or results of operations. 31. GUARANTEES In the normal course of
operations, the company provides
indemnifications that are often standard contractual terms
to counterparties in transactions such as purchase and
sale contracts, service agreements, director/officer
contracts and leasing transactions. These indemnification
agreements may require the company to compensate the
counterparties for costs incurred as a result of various
events, including environmental liabilities and changes in
(or in the interpretation of) laws and regulations, or as
a result of litigation claims or statutory sanctions that
may be suffered by the counterparty as a consequence of
the transaction. The terms of these indemnification agreements
will vary based upon the contract, the nature of which prevents the company from making a reasonable
estimate of the maximum potential amount that it could be
required to pay to counterparties. Historically, the
company has not made any significant payments under such
indemnifications and no amounts have been accrued in the
accompanying consolidated financial statements with
respect to these indemnification guarantees. The company enters into agreements in the normal course of
business that may contain features which meet the
definition of a guarantee. Various debt obligations (such
as overdrafts, lines of credit with counterparties for
derivatives, and back-to-back loan arrangements) and other
commitments (such as railcar leases) related to certain
subsidiaries have been directly guaranteed by the company
under such agreements with third parties. The company
would be required to perform on these guarantees in the
event of default by the guaranteed parties. No material
loss is anticipated by reason of such agreements and
guarantees. At December 31, 2004, the maximum potential
 amount of future (undiscounted) payments under significant
guarantees provided to third parties approximated $159.9,
representing the maximum risk of loss if there were a
total default by the guaranteed parties, without
consideration of possible recoveries under recourse
provisions or from collateral held or pledged. At December
31, 2004, no subsidiary balances subject to guarantees
were outstanding in connection with the companys cash
management facilities, and the company had no liabilities
recorded for other obligations other than subsidiary bank
borrowings of approximately $5.9, which are reflected in
other long-term debt in Note 12, and the cash margin
requirements to maintain derivatives as disclosed in Note
29. The company has guaranteed the gypsum stack capping,
closure and post-closure obligations of White Springs and
PCS Nitrogen, in Florida and Louisiana, respectively,
pursuant to the financial assurance regulatory
requirements in those states. The State of Florida is
presently reviewing, and is expected to revise, its
financial assurance requirements to ensure that
responsible parties have sufficient resources to cover all
closure and post-closure costs and liabilities associated
with gypsum stacks. This review may result in the
imposition of more stringent requirements to demonstrate
financial responsibility and/or inclusion of a greater
scope of closure and post-closure costs than under current
law. The environmental regulations of the Province of
Saskatchewan require each potash mine to have
decommissioning and reclamation (D&R) plans. In
2001, agreement was reached with the provincial government
on the financial assurances for the D&R plan to cover an
interim period to July 1, 2005. In October 2004, this interim
period was extended to July 1, 2006. A government/industry
task force has been established to assess decommissioning
options for all Saskatchewan potash producers and to
produce mutually acceptable revisions to the plan
schedules. The company has posted a Cdn $2.0 letter of
credit as collateral that will remain in effect until the
revised plans are accepted. During the year, the company
entered into various other commercial letters of credit in
the normal course of operations. The company expects that it will be able to satisfy all
applicable credit support requirements without disrupting
normal business operations.  32.
    RELATED PARTY TRANSACTIONS Sales to Canpotex are at prevailing market prices. Sales
for the year ended December 31, 2004 were $421.9 (2003 
$260.6; 2002  $241.2). Account balances resulting from the
Canpotex transactions are included in the Consolidated
Statements of Financial Position and settled on normal
trade terms (see Note 5). In connection with entering into the agreement with SQM as
described in Note 23, PCS Yumbes agreed to purchase potash
from SQM at a negotiated price that approximated market
value. In addition, PCS Yumbes agreed to sell to SQM all
of its potassium nitrate production at a negotiated price
that approximated market value. Both agreements were in
effect until closing of the PCS Yumbes sale agreement in
December 2004. Potash purchases from SQM for the year were
$7.0 (2003  $13.1; 2002  $17.9). Potassium nitrate sales
to SQM for the year were $25.1 (2003  $25.8; 2002 
$2.1). All transactions with SQM are settled on normal
trade terms.




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##### 



80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  33.
    QUARTERLY RESULTS (UNAUDITED) The following quarterly information in managements opinion includes all adjustments (consisting
solely of normal recurring adjustments) necessary for fair
presentation. All per-share data have
been retroactively adjusted to reflect the stock split described in Note 16. First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2004Sales
    
    $
    728.4
    
    
    $
    833.7
    
    
    $
    815.7
    
    
    $
    866.6Less: Freight
    
    
    58.1
    
    
    
    68.9
    
    
    
    51.2
    
    
    
    60.5Transportation and distribution
    
    
    23.0
    
    
    
    31.3
    
    
    
    23.6
    
    
    
    26.4Cost of goods sold
    
    
    523.3
    
    
    
    562.8
    
    
    
    551.5
    
    
    
    582.4Gross Margin
    
    $
    124.0
    
    
    $
    170.7
    
    
    $
    189.4
    
    
    $
    197.3Operating Income
    
    $
    97.8
    
    
    $
    129.2
    
    
    $
    133.1
    
    
    $
    154.2Net Income
    
    $
    50.7
    
    
    $
    72.6
    
    
    $
    75.2
    
    
    $
    100.1Net Income per Share  Basic
    
    $
    0.48
    
    
    $
    0.68
    
    
    $
    0.69
    
    
    $
    0.91Net Income per Share  Diluted
    
    $
    0.47
    
    
    $
    0.67
    
    
    $
    0.68
    
    
    $
    0.88First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2003Sales
    
    $
    661.8
    
    
    $
    745.0
    
    
    $
    674.6
    
    
    $
    717.6Less: Freight
    
    
    64.4
    
    
    
    60.5
    
    
    
    55.9
    
    
    
    53.7Transportation and distribution
    
    
    23.0
    
    
    
    27.5
    
    
    
    28.3
    
    
    
    19.9Cost of goods sold
    
    
    493.3
    
    
    
    534.7
    
    
    
    505.9
    
    
    
    551.5Gross Margin
    
    $
    81.1
    
    
    $
    122.3
    
    
    $
    84.5
    
    
    $
    92.5Operating Income (Loss)
    
    $
    24.7
    
    
    $
    73.1
    
    
    $
    (210.9
    )
    
    $
    57.5Net Income (Loss)
    
    $
    3.2
    
    
    $
    29.9
    
    
    $
    (185.9
    )
    
    $
    26.5Net Income (Loss) per Share  Basic
    
    $
    0.03
    
    
    $
    0.29
    
    
    $
    (1.78
    )
    
    $
    0.25Net Income (Loss) per Share  Diluted
    
    $
    0.03
    
    
    $
    0.29
    
    
    $
    (1.78
    )
    
    $
    0.25
 Net income (loss) per share for each quarter has been computed based on the weighted average number
of shares issued and outstanding during the respective quarter;
therefore, quarterly amounts may not
add to the annual total.  34.
    SEASONALITY The companys sales of fertilizer can be
seasonal. Typically, the second quarter of the year is when
fertilizer sales will be highest, due to the North
American spring planting season. However, planting
conditions and the timing of customer purchases will vary
each year and sales can be expected to shift from one
quarter to another.  35.
    COMPARATIVE FIGURES Certain of the prior years figures have been reclassified
to conform with the current years presentation.  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Canadian GAAP varies in certain significant respects from
US GAAP. As required by the United States Securities and
Exchange Commission, the effect of these principal
differences on the companys consolidated financial
statements is described and quantified below: Long-term
investments:The companys investment in ICL is stated at
cost. US GAAP requires that this investment be classified
as available-for-sale and be stated at market value with
the difference between market value and cost reported as a
component of Other Comprehensive Income (OCI). Under US
GAAP, when an investment previously accounted for using
the cost method qualifies for use of the equity method, the
investor should adopt the equity method of accounting. The
investment, results of operations (current and prior
periods presented), and retained earnings of the investor should be adjusted retroactively.
 Under Canadian GAAP,
equity accounting is generally not applied retroactively.
In 2002, the company acquired additional shares in SQM and
adopted the equity method of accounting, though not on a
retroactive basis. In 2004, the company corrected this
omission in its US GAAP reconciliation to reflect a
reduction in 2002 opening accumulated other comprehensive
income, deferred income taxes payable and long-term
investments of $6.8, $3.9 and $10.7, respectively, and an
increase in other comprehensive income of $23.2. The
revision had no effect on 2002 opening retained
earnings, net income or net income per share. Property, plant and equipment and goodwill:The net book
value of property, plant and equipment and goodwill under
Canadian GAAP is higher than under US GAAP, as past
provisions for asset impairment under Canadian GAAP were
measured based on the undiscounted cash flow from use
together with the residual value of the assets. Under US
GAAP they were measured based on fair value, which was
lower than the undiscounted cash flow from use together
with the residual value of the assets. Fair value for this
purpose was determined based on discounted expected future
net cash flows. Depreciation and amortization:Depreciation and
amortization under Canadian GAAP is higher than under US
GAAP, as a result of differences in the carrying amounts
of property, plant and equipment under Canadian and US
GAAP. Pre-operating costs:Operating costs incurred during the
start-up phase of new projects are deferred under Canadian GAAP until commercial production levels are reached, at which time they are amortized over the
estimated life of the project. US GAAP requires that these
costs be expensed as incurred.




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##### 



81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Asset retirement obligations:The company adopted SFAS No.
143, Accounting for Asset Retirement Obligations, for US
GAAP purposes effective January 1, 2003. As described in
Note 3, the equivalent Canadian standard was not adopted
until January 1, 2004. Post-retirement and post-employment benefits:Under
Canadian GAAP, when a defined benefit plan gives rise to
an accrued benefit asset, a company must recognize a
valuation allowance for the excess of the adjusted benefit
asset over the expected future benefit to be realized from
the plan asset. Changes in the pension valuation allowance
are recognized in income. US GAAP does not specifically
address pension valuation allowances, and the US
regulators have interpreted this to be a difference
between Canadian and US GAAP. In light of this, a
difference between Canadian and US GAAP has been recorded
for the effects of recognizing a pension valuation
allowance and the changes therein under Canadian GAAP. The companys accumulated benefit obligation for its US
pension plans exceeds the fair value of plan assets. US
GAAP requires the recognition of an additional minimum
pension liability in the amount of the excess of the
unfunded accumulated benefit obligation over the recorded
pension benefits liability. An offsetting intangible asset
is recorded equal to the unrecognized prior service costs,
with any difference recorded as a reduction of accumulated
OCI. No similar requirement exists under Canadian GAAP. Foreign currency translation adjustment:The company
adopted the US dollar as its functional and reporting
currency on January 1, 1995. At that time, the consolidated
financial statements were translated into US dollars at
the December 31, 1994 year-end exchange rate using the
translation of convenience method under Canadian GAAP.
This translation method was not permitted under US GAAP.
US GAAP required the comparative Consolidated Statements
of Operations and Consolidated Statements of Cash Flow to
be translated at applicable weighted-average exchange
rates; whereas the Consolidated Statements of Financial
Position were permitted to be translated at the December
31, 1994 year-end exchange rate. The use of disparate
exchange rates under US GAAP gave rise to a foreign currency translation
adjustment. Under US GAAP, this adjustment is reported as a
component of accumulated OCI. Derivative instruments and hedging activities:Under
Canadian GAAP, effective January 1, 2004, derivatives used
for non-trading purposes that do not qualify for hedge
accounting are carried at fair value on the Consolidated
Statements of Financial Position, with changes in fair
value reflected in earnings. Derivatives embedded within
hybrid instruments are generally not separately accounted
for except for those related to equity-linked deposit
contracts, which are not applicable to the company. Gains
and losses on derivative instruments held within an
effective hedge relationship are recognized in earnings on
the same basis and in the same period as the underlying
hedged items. There is no difference in accounting between
Canadian and US GAAP in respect of derivatives that do not
qualify for hedge accounting. Unlike Canadian
GAAP, however, the company recognizes all of its derivative
instruments (whether designated in hedging relationships
or not, or embedded within hybrid instruments) at fair value on the Consolidated Statements of
 Financial Position
for US GAAP purposes. Under US GAAP, the accounting for
changes in the fair value (i.e. gains or losses) of a
derivative instrument depends on whether it has been
designated and qualifies as part of a hedging
relationship. For strategies designated as fair value
hedges, the effective portion of the change in the fair
value of the derivative is offset in income against the
change in fair value, attributed to the risk being hedged,
of the underlying hedged asset, liability or firm
commitment. For cash flow hedges, the effective portion of
the changes in the fair value of the derivative is
accumulated in OCI until the variability in cash flows
being hedged is recognized in earnings in future
accounting periods. For both fair value and cash flow
hedges, if a derivative instrument is designated as a hedge
and meets the criteria for hedge effectiveness, earnings
offset is available, but only to the extent that the hedge
is effective. Ineffective portions of fair value or cash
flow hedges are recorded in earnings in the current
period. Freight, transportation and distribution:The company has
changed its accounting policy regarding consolidated
financial statement presentation of freight costs and
transportation and distribution expenses under US GAAP. In
prior years, the company included freight costs in cost of
goods sold and transportation and distribution expenses in
operating expenses under US GAAP. Effective January 1,
2004, the company discloses freight costs and
transportation and distribution expenses under US GAAP as
separate line items within gross margin on the Consolidated Statements of Operations and Retained
Earnings. This presentation is consistent with the new
Canadian GAAP presentation described in Note 3. All
comparative information has been appropriately
reclassified. Provision for plant shutdowns:The 2003 provision for
plant shutdowns under Canadian GAAP includes $12.7 for
writedowns of parts inventory. US GAAP requires that these
writedowns be presented as a component of cost of goods
sold. Provision for PCS Yumbes S.C.M.:The 2003 provision for
PCS Yumbes under Canadian GAAP includes $50.2 for
writedowns of non-parts inventory. US GAAP requires that
these writedowns be presented as a component of cost of
goods sold. Comprehensive income:Comprehensive income is recognized
and measured under US GAAP pursuant to SFAS No. 130,
Reporting Comprehensive Income. This standard defines
comprehensive income as all changes in equity other than
those resulting from investments by owners and
distributions to owners. Comprehensive income is comprised
of two components, net income and OCI. OCI refers to
amounts that are recorded as an element of shareholders
equity but are excluded from net income because these
transactions or events were attributed to changes from
non-owner sources. As described in Note 2, Canadian
standards relating to comprehensive income are not
effective until fiscal years beginning on or after October 1, 2006. Income taxes:The income tax adjustment reflects the
impact on income taxes of the US GAAP adjustments
described above. Accounting for income taxes under
Canadian and US GAAP is similar, except that income tax
rates of enacted or substantively enacted tax law must be
used to calculate future income tax assets and liabilities
under Canadian GAAP, whereas only income tax rates of
enacted tax law can be used under US GAAP.




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##### 



82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED) The application of US GAAP,
as described above, would have had the following effects on net income
(loss), net income (loss) per share, total assets and
shareholders equity. All share and per-share
data have been retroactively adjusted to reflect the stock split described in Note 16. 2004
    
    
    2003
    
    
    2002(1)Net income (loss) as reported  Canadian GAAP
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Items increasing or decreasing reported net income (loss)Cash flow hedge ineffectiveness
    
    
    2.6
    
    
    
    
    
    
    
    Pre-operating costs
    
    
    
    
    
    
    63.0
    
    
    
    2.6Depreciation and amortization
    
    
    8.4
    
    
    
    8.5
    
    
    
    8.4Accretion of asset retirement obligations
    
    
    3.3
    
    
    
    (3.3
    )
    
    
    Post-retirement and post-employment benefits
    
    
    (2.2
    )
    
    
    2.0
    
    
    
    Deferred income taxes relating to the above adjustments
    
    
    (4.3
    )
    
    
    (23.7
    )
    
    
    (4.0
    )Net income (loss)  US GAAP
    
    $
    306.4
    
    
    $
    (79.8
    )
    
    $
    60.6Weighted average shares outstanding  US GAAP
    107,967,000
    
    104,460,000
    
    104,042,000Basic net income per share  US GAAP
    
    $
    2.84
    
    
    $
    (0.76
    )
    
    $
    0.58Total assets as reported  Canadian GAAP
    
    $
    5,126.8
    
    
    $
    4,567.3
    
    
    $
    4,685.6Items increasing (decreasing) reported total assetsInventory
    
    
    (3.0
    )
    
    
    (2.7
    )
    
    
    (4.0
    )Other current assets
    
    
    2.6
    
    
    
    
    
    
    
    Available-for-sale securities (unrealized holding gain)
    
    
    161.7
    
    
    
    60.6
    
    
    
    17.9Fair value of derivative instruments
    
    
    66.5
    
    
    
    59.8
    
    
    
    52.7Property, plant and equipment
    
    
    (126.5
    )
    
    
    (134.9
    )
    
    
    (143.4
    )Pre-operating costs
    
    
    
    
    
    
    
    
    
    
    (63.0
    )Post-retirement and post-employment benefits
    
    
    11.7
    
    
    
    13.9
    
    
    
    11.9Intangible asset relating to additional minimum pension liability
    
    
    9.6
    
    
    
    2.7
    
    
    
    Goodwill
    
    
    (46.7
    )
    
    
    (46.7
    )
    
    
    (46.7
    )Total assets  US GAAP
    
    $
    5,202.7
    
    
    $
    4,520.0
    
    
    $
    4,511.0Total shareholders equity as reported  Canadian GAAP
    
    $
    2,385.6
    
    
    $
    1,973.8
    
    
    $
    2,092.5Items increasing (decreasing) reported shareholders equityAccumulated
other comprehensive income (loss), net of related income taxes
    
    
    96.8
    
    
    
    31.2
    
    
    
    (13.6
    )Foreign currency translation adjustment
    
    
    20.9
    
    
    
    20.9
    
    
    
    20.9Accretion of asset retirement obligations
    
    
    
    
    
    
    (3.3
    )
    
    
    Provision for asset impairment
    
    
    (218.0
    )
    
    
    (218.0
    )
    
    
    (218.0
    )Depreciation and amortization
    
    
    44.8
    
    
    
    36.4
    
    
    
    27.9Pre-operating costs
    
    
    
    
    
    
    
    
    
    
    (63.0
    )Cash flow hedge ineffectiveness
    
    
    2.6
    
    
    
    
    
    
    
    Post-retirement and post-employment benefits
    
    
    11.7
    
    
    
    13.9
    
    
    
    11.9Deferred income taxes relating to the above adjustments
    
    
    30.4
    
    
    
    34.7
    
    
    
    58.4Shareholders equity  US GAAP
    
    $
    2,374.8
    
    
    $
    1,889.6
    
    
    $
    1,917.0
 (1)
  SUPPLEMENTAL US GAAP DISCLOSURE Recent Accounting Pronouncements In December 2003, the Financial Accounting Standards Board
(FASB) revised FIN No. 46, Consolidation of Variable
Interest Entities, which clarifies the application of
Accounting Research Bulletin No. 51 Consolidated
Financial Statements to those entities (defined as VIEs)
in which either the equity at risk is not sufficient to
permit that entity to finance its activities without
additional subordinated financial support from other
parties, or equity investors lack voting control, an
obligation to absorb expected losses or the right to
receive expected residual returns. FIN No. 46(R) requires
consolidation by a business of VIEs in which it is the
primary beneficiary. The primary beneficiary is defined as
the party that has
 exposure to the majority of the
expected losses and/or expected residual returns of the
VIE. FIN No. 46(R) was effective for the company in the
first quarter, and there was no material impact on its
financial position, results of operations or cash flows
from adoption. In July 2004, the Emerging Issues Task Force (EITF)
discussed Issue No. 04-6, Accounting for Post-Production
Stripping Costs in the Mining Industry. At its September
meeting, the EITF generally supported an approach that
stripping costs incurred during production are
mine-development costs that should be capitalized as an
investment in the mine, and these capitalized costs should
be attributed to reserves in a systematic and rational
manner. The EITF did not make this a final consensus
because it wanted to explore the impact of any consensus
on mines with differing physical patterns of ore location
(which affects the overall timing of attribution). Further
discussion of this issue is expected at a future EITF
meeting.




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##### 



83 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US
Dollars except share and per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) In November 2004, the EITF ratified Issue No. 03-13,
Applying the Conditions in Paragraph 42 of FASB Statement
No.144, Accounting for the Impairment or Disposal of
Long-Lived Assets, in Determining Whether to Report
Discontinued Operations. The EITF reached a consensus
that classification of a disposed of or held-for-sale
component as a discontinued operation is only appropriate
if the ongoing entity (i) expects to have no continuing
direct cash flows, and (ii) does not retain or expect to
retain an interest, contract or other arrangement
sufficient to enable it to exert significant influence
over the disposed components operating and financial
policies after the disposal transaction. Application of
this consensus did not have a material impact on the
companys consolidated financial statements. In November 2004, the
FASB issued SFAS No. 151, Inventory
Costs, to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials
(spoilage) should be recognized as current-period
charges, and to require the allocation of fixed production
overheads to inventory based on the normal capacity of the
production facilities. The guidance is effective for
inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted. The
company is reviewing the guidance to determine the
potential impact, if any, on its consolidated financial
statements. In December 2004, the FASB issued SFAS No. 123 (revised
2004), Share-Based Payment, that will require
compensation costs related to share-based payment
transactions to be recognized in financial statements. With
limited exceptions, the amount of compensation cost will be
measured based on the grant-date fair value of the equity
or liability instruments issued. In addition, liability
awards will be remeasured each reporting period.
Compensation cost will be recognized over the period that
an employee provides service in exchange for the award.
The standard replaces SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees. It is
effective for the first interim or annual reporting period
beginning after
 June 15, 2005, meaning that the company will apply the
guidance to all employee awards of share-based payment
granted, modified or settled in the third quarter of 2005.
The company is reviewing the standard to determine the
potential impact, if any, on its consolidated financial
statements. Available-for-Sale Security The companys investment in ICL is classified as
available-for-sale. The fair market value of this
investment at December 31, 2004 was $254.5 and the
unrealized holding gain was $161.7. Deferred Income Taxes The total valuation allowance recognized for deferred
income tax assets in 2004 was $29.4 (2003  $11.4). The
company has determined that it is more likely than not
that the deferred income tax asset net of the valuation
allowance will be realized through a combination of future
reversals of temporary differences and taxable income. Stock-Based Compensation Prior to 2003, the company applied the intrinsic value
based method of accounting for its stock option plans
under US GAAP. No stock-based employee compensation cost
is reflected in 2002 net income, as all options granted
under the plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.
Effective December 15, 2003, the company adopted the fair
value based method of accounting for stock options
prospectively to all employee awards granted, modified or
settled after January 1, 2003 pursuant to the transitional
provisions of SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Since the
companys stock option awards vest over two years, the
compensation cost included in the determination of net
income (loss) for years ended December 31, 2004 and 2003 is
less than that which would have been recognized if the
fair value based method had been applied to all awards
since the original effective date of SFAS
No.123, Accounting for Stock-Based Compensation. The
following table illustrates the effect on net income
(loss) and net income (loss) per share under US GAAP if
the fair value based method had been applied to all
outstanding and unvested awards in each period.
   2004
    
    
    2003
    
    
    2002Net income (loss)  as reported under US GAAP
    
    $
    306.4
    
    
    $
    (79.8
    )
    
    $
    60.6Add:
 Stock-based employee compensation expense included
in reported net income(loss), net of related tax effects

    
    8.8
    
    
    
    0.8
    
    
    
    Less: Total stock-based employee compensation expense determined under
fair valuebased method for all optionawards, net of related tax effects
    
    
    (12.8
    )
    
    
    (14.8
    )
    
    
    (14.3
    )Net income
(loss)  pro forma under US GAAP (1)
    
    $
    302.4
    
    
    $
    (93.8
    )
    
    $
    46.3(1)   Compensation expense under the fair value based method is recognized over the
vesting period of the related stock options. Accordingly, the pro forma results of applying this
method may not be indicative of future results.
 2004
    
    
    2003
    
    
    2002Basic net income (loss) per shareAs reported
    
    $
    2.84
    
    
    $
    (0.76
    )
    
    $
    0.58Pro forma
    
    
    2.80
    
    
    
    (0.90
    )
    
    
    0.45Diluted net income (loss) per shareAs reported
    
    $
    2.77
    
    
    $
    (0.76
    )
    
    $
    0.58Pro forma
    
    
    2.73
    
    
    
    (0.90
    )
    
    
    0.44




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##### 



84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Derivative Instruments and Hedging Activities The company has designated its natural gas derivative instruments as cash flow hedges. The portion of gain or loss on derivative instruments designated as cash flow hedges that are
effective at offsetting changes in the hedged item is reported as a
component of accumulated OCI and then is reclassified into cost of goods sold when the product containing the hedged item is
sold. Any hedge ineffectiveness is recorded in cost of goods sold in
the current period. During the
year, a gain of $43.0 was recognized in cost of goods sold (2003  $89.9; 2002  $15.5). Of the
deferred gains at year-end, approximately $36.7 will be reclassified to cost of goods sold within
the next 12 months. Related Party Transactions During the year, sales to a company associated with the immediate family of a member of the Board of
Directors of PCS totalled $16.2 (2003  $9.1). These transactions were conducted in the normal
course of business at the prevailing market prices and on normal trade terms. SUPPLEMENTAL SCHEDULES The following supplemental schedules present the consolidated Financial Position, Operations and
Retained Earnings, Comprehensive Income (Loss), Accumulated Other Comprehensive Income (Loss), and
Cash Flow in accordance with US GAAP as adjusted for the GAAP differences described in this note. SUPPLEMENTAL SCHEDULE OF CONSOLIDATED FINANCIAL POSITION As at December 31 2004
    
    
    2003AssetsCurrent assetsCash and cash equivalents
    
    $
    458.9
    
    
    $
    4.7Accounts receivable
    
    
    352.6
    
    
    
    305.0Inventories
    
    
    393.8
    
    
    
    392.5Prepaid expenses and other current assets
    
    
    37.9
    
    
    
    29.0Current portion of derivative instruments
    
    
    38.2
    
    
    
    37.51,281.4
    
    
    
    768.7Derivative instruments
    
    
    28.3
    
    
    
    22.3Property, plant and equipment
    
    
    2,972.4
    
    
    
    2,973.2Other assets
    
    
    833.2
    
    
    
    672.6Intangible assets
    
    
    37.1
    
    
    
    32.9Goodwill
    
    
    50.3
    
    
    
    50.3$
    5,202.7
    
    
    $
    4,520.0LiabilitiesCurrent liabilitiesShort-term debt
    
    $
    93.5
    
    
    $
    176.2Accounts payable and accrued charges
    
    
    599.9
    
    
    
    380.3Current portion of long-term debt
    
    
    10.3
    
    
    
    1.3703.7
    
    
    
    557.8Long-term debt
    
    
    1,258.6
    
    
    
    1,268.6Deferred income tax liability
    
    
    521.6
    
    
    
    469.8Accrued post-retirement/post-employment benefits
    
    
    257.9
    
    
    
    242.5Accrued environmental costs and asset retirement obligations
    
    
    81.2
    
    
    
    84.6Other non-current liabilities and deferred credits
    
    
    4.9
    
    
    
    7.12,827.9
    
    
    
    2,630.4Shareholders EquityShare capital
    
    
    1,408.4
    
    
    
    1,245.8Additional paid-in capital
    
    
    275.7
    
    
    
    265.2Retained earnings
    
    
    593.9
    
    
    
    347.4Accumulated other comprehensive income
    
    
    96.8
    
    
    
    31.22,374.8
    
    
    
    1,889.6$
    5,202.7
    
    
    $
    4,520.0




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##### 



85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US
Dollars except share and per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED) SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS  2004
    
    
    2003
    
    
    2002Sales
    
    $
    3,244.4
    
    
    $
    2,799.0
    
    
    $
    2,222.4Less: Freight
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2Transportation and distribution
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5Cost of goods sold
    
    
    2,207.9
    
    
    
    2,141.2
    
    
    
    1,610.4Gross Margin
    
    
    693.5
    
    
    
    324.6
    
    
    
    318.3Selling and administrative
    
    
    130.6
    
    
    
    96.1
    
    
    
    91.7Provincial mining and other taxes
    
    
    92.6
    
    
    
    57.0
    
    
    
    68.0Provision for plant shutdowns
    
    
    
    
    
    
    111.0
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    3.6
    
    
    
    27.3
    
    
    
    Foreign exchange loss
    
    
    19.7
    
    
    
    51.9
    
    
    
    5.5Share of earnings of equity investees
    
    
    (30.9
    )
    
    
    (12.4
    )
    
    
    (5.3
    )Other income
    
    
    (48.5
    )
    
    
    (20.8
    )
    
    
    (19.5
    )167.1
    
    
    
    310.1
    
    
    
    140.4Operating Income
    
    
    526.4
    
    
    
    14.5
    
    
    
    177.9Interest Expense
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1Income (Loss) Before Income Taxes
    
    
    442.4
    
    
    
    (76.8
    )
    
    
    94.8Income Taxes
    
    
    136.0
    
    
    
    3.0
    
    
    
    34.2Net Income (Loss)
    
    
    306.4
    
    
    
    (79.8
    )
    
    
    60.6Retained
Earnings, Beginning of Year
    
    
    347.4
    
    
    
    479.5
    
    
    
    470.9Dividends
    
    
    (59.9
    )
    
    
    (52.3
    )
    
    
    (52.0
    )Retained
Earnings, End of Year
    
    $
    593.9
    
    
    $
    347.4
    
    
    $
    479.5Net Income (Loss) Per Share  Basic
    
    $
    2.84
    
    
    $
    (0.76
    )
    
    $
    0.58Net Income (Loss) Per Share  Diluted
    
    $
    2.77
    
    
    $
    (0.76
    )
    
    $
    0.58Dividends Per Share
    
    $
    0.55
    
    
    $
    0.50
    
    
    $
    0.50
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)  2004
    
    
    2003
    
    
    2002
    (1)Net income (loss)
    
    $
    306.4
    
    
    $
    (79.8
    )
    
    $
    60.6Other comprehensive income (loss)Change in unrealized holding gains and losses on available-for-sale securities
    
    
    101.2
    
    
    
    42.7
    
    
    
    (6.3
    )Change in gains and losses on derivatives designated as cash flow hedges
    
    
    49.3
    
    
    
    98.3
    
    
    
    66.0Reclassification to income of gains and losses on cash flow hedges
    
    
    (43.0
    )
    
    
    (89.9
    )
    
    
    (15.5
    )Adjustment to additional minimum pension liability
    
    
    (9.6
    )
    
    
    23.4
    
    
    
    (68.7
    )Deferred income taxes related to other comprehensive income
    
    
    (32.3
    )
    
    
    (29.7
    )
    
    
    8.8Other
comprehensive income (loss), net of related income taxes
    
    
    65.6
    
    
    
    44.8
    
    
    
    (15.7
    )Comprehensive income (loss)
    
    $
    372.0
    
    
    $
    (35.0
    )
    
    $
    44.9
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)  2004
    
    
    2003
    
    
    2002
    (1)Accumulated
other comprehensive income (loss), beginning of year
    
    $
    31.2
    
    
    $
    (13.6
    )
    
    $
    2.1Other
comprehensive income (loss), net of related income taxes
    
    
    65.6
    
    
    
    44.8
    
    
    
    (15.7
    )Accumulated
other comprehensive income (loss), end of year
    
    $
    96.8
    
    
    $
    31.2
    
    
    $
    (13.6
    )
 The balances related to each
component of accumulated other comprehensive income (loss), net of
related income taxes, are as follows: 2004
    
    
    2003
    
    
    2002
    (1)Unrealized gains and losses on available-for-sale securities
    
    $
    106.7
    
    
    $
    39.0
    
    
    $
    13.3Gains and losses on derivatives designated as cash flow hedges
    
    
    47.4
    
    
    
    43.1
    
    
    
    38.0Additional minimum pension liability
    
    
    (36.4
    )
    
    
    (30.0
    )
    
    
    (44.0
    )Foreign currency translation adjustment
    
    
    (20.9
    )
    
    
    (20.9
    )
    
    
    (20.9
    )Accumulated
other comprehensive income (loss), end of year
    
    $
    96.8
    
    
    $
    31.2
    
    
    $
    (13.6
    )(1)   Previously reported figures for 2002 have been adjusted for the US GAAP
accounting for long-term investments as described on Page 80.




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##### 



86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US Dollars except share and
per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED) SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW  2004
    
    
    2003
    
    
    2002Operating ActivitiesNet income (loss)
    
    $
    306.4
    
    
    $
    (79.8
    )
    
    $
    60.6Items not affecting cashDepreciation and amortization
    
    
    231.6
    
    
    
    218.9
    
    
    
    208.1Stock-based compensation
    
    
    11.1
    
    
    
    1.0
    
    
    
    (Gain) loss
on disposal of property, plant and equipment
    
    
    (0.7
    )
    
    
    1.0
    
    
    
    1.0Gain on sale of long-term investments
    
    
    (34.4
    )
    
    
    
    
    
    
    Provision for plant shutdowns
    
    
    
    
    
    
    105.6
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    3.6
    
    
    
    14.5
    
    
    
    Writedown of inventories
    
    
    
    
    
    
    62.9
    
    
    
    Foreign exchange on deferred income tax
    
    
    17.2
    
    
    
    35.9
    
    
    
    1.0Provision for deferred income tax
    
    
    30.6
    
    
    
    3.0
    
    
    
    10.0Share of earnings of equity investees
    
    
    (30.9
    )
    
    
    (12.4
    )
    
    
    (5.3
    )Provision for post-retirement/post-employment benefits
    
    
    1.1
    
    
    
    9.7
    
    
    
    18.2Accrued environmental costs and asset retirement obligations
    
    
    (3.4
    )
    
    
    4.6
    
    
    
    (3.0
    )Other non-current liabilities and deferred credits
    
    
    
    
    
    
    1.6
    
    
    
    (1.4
    )Changes in non-cash operating working capitalAccounts receivable
    
    
    (51.9
    )
    
    
    (39.5
    )
    
    
    (11.1
    )Inventories
    
    
    (10.5
    )
    
    
    14.5
    
    
    
    (14.2
    )Prepaid expenses and other current assets
    
    
    (8.9
    )
    
    
    9.4
    
    
    
    (3.9
    )Accounts payable and accrued charges
    
    
    102.2
    
    
    
    48.9
    
    
    
    33.0Current income taxes
    
    
    86.5
    
    
    
    (18.3
    )
    
    
    23.4Cash provided by operating activities
    
    
    649.6
    
    
    
    381.5
    
    
    
    316.4Investing ActivitiesAdditions to
property, plant and equipment
    
    
    (220.5
    )
    
    
    (150.7
    )
    
    
    (212.2
    )Proceeds
from disposal of property, plant and equipment
    
    
    2.5
    
    
    
    
    
    
    
    Investment in Sociedad Quimica y Minera de Chile S.A.
    
    
    (97.2
    )
    
    
    
    
    
    
    (23.2
    )Investment in Arab Potash Company
    
    
    (8.3
    )
    
    
    (178.3
    )
    
    
    Proceeds from sale of long-term investments
    
    
    66.3
    
    
    
    
    
    
    
    Proceeds from sale of shares of PCS Yumbes S.C.M.
    
    
    34.5
    
    
    
    
    
    
    
    Dividends received from equity investees
    
    
    8.7
    
    
    
    4.0
    
    
    
    Other assets and intangibles
    
    
    (2.8
    )
    
    
    (32.7
    )
    
    
    (36.0
    )Cash used in investing activities
    
    
    (216.8
    )
    
    
    (357.7
    )
    
    
    (271.4
    )Financing ActivitiesProceeds from long-term debt obligations
    
    
    
    
    
    
    250.0
    
    
    
    11.2Repayment of long-term debt obligations
    
    
    (1.0
    )
    
    
    (3.4
    )
    
    
    (1.3
    )Repayment of short-term debt obligations
    
    
    (82.7
    )
    
    
    (296.8
    )
    
    
    (28.1
    )Dividends
    
    
    (56.1
    )
    
    
    (52.3
    )
    
    
    (52.0
    )Issuance of shares
    
    
    161.2
    
    
    
    58.9
    
    
    
    4.4Cash provided by (used in) financing activities
    
    
    21.4
    
    
    
    (43.6
    )
    
    
    (65.8
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    454.2
    
    
    
    (19.8
    )
    
    
    (20.8
    )Cash and
Cash Equivalents, Beginning of Period
    
    
    4.7
    
    
    
    24.5
    
    
    
    45.3Cash and
Cash Equivalents, End of Period
    
    $
    458.9
    
    
    $
    4.7
    
    
    $
    24.5
  37.
    SUBSEQUENT EVENT On January 25, 2005, the Board of Directors of PCS authorized a share repurchase program of up to 5.5
million common shares (approximately 5 percent of the companys issued and outstanding common
shares) through a normal course issuer bid. If considered advisable, shares may be repurchased from
time to time on the open market through February 14, 2006 at
prevailing market prices. The timing and
amount of purchases, if any, under the program will be dependent upon the availability and
alternative uses of capital, market conditions and other factors.




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87 
 POTASHCORP 2004 ANNUAL REPORT  |  BOARD OF DIRECTORS   (BOARD OF DIRECTORS) Committees: (1)
    Executive committee(2)
    Corporate governance and nominating committee(3)
    Compensation committee(4)
    Safety, health and environment committee(5)
    Audit committee
 Frederick J. Blesi,of
Glenview, Illinois, is a retired
Chairman and CEO of the
Phosphate Chemicals Export
Association Inc. (PhosChem),
principal exporter of US
phosphate chemicals. Before
joining PhosChem, he was Vice
President, International with
International Minerals and
Chemical Corporation. He is a
director of the Evans Scholars
Foundation and The Western Golf
Association. He joined the PCS
Inc. Board in 2001. (2,5) William J. Doyle,of Saskatoon,
Saskatchewan, is President and
CEO of Potash Corporation of
Saskatchewan Inc. He became
President of PCS Sales in 1987,
after a career with
International Minerals and
Chemical Corporation. He is
Chairman of the Potash &
Phosphate Institute and the
International Fertilizer
Industry Associations
Production and International
Trade Committee, and
Vice-Chairman of Canpotex
Limited and The Fertilizer
Institute. Mr. Doyle is on the
College Board of Advisors at
Georgetown University. He
joined the PCS Inc. Board in
1989. (1) John W. Estey,of
Glenview, Illinois, is
President and CEO of S&C
Electric Company. He is a director
of the Institute of Electrical
and Electronics Engineers and a
member of the Board of
Governors of the National
Electrical Manufacturers
Association. A director of the
Executives Club of Chicago, he
is also a member of the Deans
Advisory Board at the Kellogg
School of Management at
Northwestern University. He
joined the PCS Inc. Board in
2003. (3,4) Wade Fetzer III,of
Glencoe, Illinois, is Retired
Partner with the investment
banking firm Goldman Sachs. He
sits on the boards of
Serologicals Corporation,
Sphere Communications, Northern
Star Broadcasting, University
of Wisconsin Foundation and
Rush-Presbyterian St. Lukes
Medical Center. He is also on
the Kellogg Alumni Advisory
Board. He joined the PCS Inc.
Board in 2002. (2,3) Dallas J. Howe,of
Calgary, Alberta, serves in a
management role with GE Medical
Systems Information Technology,
which now includes the company
he formerly owned, BDM
Information Systems. He is owner
and CEO of DSTC Ltd., a
technology investment company,
and a director of Advanced Data
Systems Ltd., as well as Chair
of the University of
Saskatchewan Board of Governors.
A director of the PCS Crown
corporation from 1982 to 1989,
he joined the PCS Inc. Board in
1991 and was elected Chair in
2003. (1,2) Alice D. Laberge,of
Vancouver, British Columbia, is
President and CEO of Fincentric
Corporation, a global provider
of software solutions to
financial institutions. She was
formerly Senior Vice President
and Chief Financial Officer of
MacMillan Bloedel Limited, and
is a director of BC Hydro, the
United Way of the Lower
Mainland and St. Pauls
Hospital Foundation. She joined
the PCS Inc. Board in 2003. (4,5)
 Jeffrey J. McCaig,of Houston, Texas, is
Chairman, CEO and a
director of Trimac
Holdings, a bulk trucking and
third-party logistics
company. He is also a
director of Orbus Pharma
Inc. and The Standard Life
Assurance Company of
Canada. He joined the PCS
Inc. Board in 2001. (3,5) Mary Mogford,of
Newcastle, Ontario, a
Corporate Director, is a
former Ontario Deputy
Finance Minister and Deputy
Minister of Natural
Resources. She is a
director of Falconbridge
Ltd., MDS Inc., Sears
Canada Inc. and Sears
Canada Bank, and a member of the
Altamira Advisory Council.
A Fellow of the Institute
of Corporate Directors
(ICD), in 2004 she was
accredited through the
ICD/Rotman School of
Business Directors
Training Program. She
joined the PCS Inc. Board
in 2001. (2,5) Paul J. Schoenhals,of Calgary, Alberta,
is President of Petroleum
Industry Training Service.
He is a former Member of
the Legislative Assembly
and Cabinet Minister in
Saskatchewan and was
Chairman of Potash
Corporation of
Saskatchewan, the Crown
corporation, from 1987 to
1989. He joined the PCS
Inc. Board in 1992. (3,4) E. Robert
Stromberg,
QC,of
Saskatoon, Saskatchewan,
is associated with the
Saskatchewan law firm
Robertson Stromberg
Pedersen. He is a director
of NorSask Forest Products
Inc. and Hitachi Canadian
Industries Ltd. and
Chairman of the Saskatoon
Airport Authority. He
joined the PCS Inc. Board
in 1991. (1,2,4) Jack G. Vicq,of Saskatoon,
Saskatchewan, is Professor
Emeritus of Accounting,
University of Saskatchewan.
He is a past Associate Dean
of Commerce at the
university and was
responsible for the Centre
for International Business Studies.
Formerly holder of the A.W. Johnson Distinguished Chair in Public Policy in
the Saskatchewan
Department of Finance, he
is currently Chairman of
the Provincial Court
Commission. He joined the
PCS Inc. Board in 1989. (1,5) Elena Viyella de Paliza,of the
Dominican Republic, is
President of Inter-Quimica, S.A., a
chemicals importer and
distributor, Monte Rio
Power Corp and Indescorp,
S.A. She is president of
the Dominican Business
Council, a member of the board of the
Inter-American Dialogue
and past president of the
Dominican Stock Exchange,
Dominican Manufacturers
Association and the
National Agribusiness
Board. She joined the PCS
Inc. Board in 2003. (1,4)




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88 POTASHCORP 2004 ANNUAL REPORT  |  CORPORATE INFORMATION  
 Corporate Officers and Key Management (CORPORATE OFFICERS AND KEY MANAGEMENT PICTURE)  William J. Doyle
President and Chief Executive Officer
He joined the company in 1987 as
President of PCS Sales, and has more
than 30 years in the fertilizer
industry. He was named CEO in 1999. James F. Dietz
Executive Vice President and Chief Operating Officer
A chemical engineer with more than 30
years in the fertilizer industry, he
joined the company in 1997 and became
COO in 2000. Wayne R. Brownlee
Senior Vice President, Treasurer and Chief Financial Officer
An MBA with responsibility for
corporate business development, he
joined the company in 1988 and was
appointed CFO in 1999. Betty-Ann L. Heggie
Senior Vice President, Corporate Relations
An educator with a marketing
background, she joined the company in
1981 and rose to her current post in
1995, with responsibility for
PotashCorps reputation. Barbara Jane Irwin
Senior Vice President, Administration
A lawyer by training with more
than 20 years in human resources,
she joined the company in 2000
with responsibility for
recruitment, benefits and
compensation.
 Robert A. Jaspar
Senior Vice President, Information Technology
A chartered accountant, he came to
PotashCorp in 1997 as an internal
auditor and moved to his current
position in 2003, managing the
systems that meet company information
needs. G. David Delaney
President, PCS Sales
With a BSc in Agriculture, he has
worked in the fertilizer industry
since 1983 and joined PotashCorp in
1997, rising to his current position
in 2000. Garth W. Moore
President, PCS Potash
A mining engineer, he has spent more
than 30 years in the potash industry
and joined PotashCorp in 1982,
rising to his current position in
1997. Thomas J. Regan, Jr.
President, PCS Phosphate
A chemical engineer and MBA, he has
spent 30 years in industrial
operations, joining PotashCorp in
1995 and becoming president of its
phosphate division in 1999. Daphne J. Arnason
Vice President, Internal Audit
A chartered accountant, she joined
the company in 1988 and rose to her
current position in 2003, with
responsibility for auditing policies
and programs.
 Karen G. Chasez
Vice President, Procurement
A social worker with 19 years in
fertilizer industry publishing
and administration, she has
overseen company purchasing,
inventory and supplier
negotiations since joining PotashCorp in 2000. John R. Hunt
Vice President, Safety, Health and Environment
After studying agricultural
business, he has spent 24 years in
the fertilizer industry, joining
PotashCorp in 1997 and moving to his
present position in 2005. Joseph A. Podwika
Vice President, General Counsel and Secretary
A lawyer, he joined PotashCorp in
1997 and took on his current post
in 2005, with responsibility for
the delivery of legal services and
oversight of corporate governance. Denis A. Sirois
Vice President and Corporate Controller
A certified management
accountant, he joined the company
in 1978 and has held his current
position since 1997, with wide
responsibilities in financial
reporting.
   (POT CHARTS)




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89 POTASHCORP 2004 ANNUAL REPORT  |  SHAREHOLDER INFORMATION 
  Shareholder Information ANNUAL MEETING The Annual Shareholders meeting will be held at
10:30 a.m. Central Standard Time May 5, 2005 in
the Adam Ballroom, Delta Bessborough Hotel, 601
Spadina Crescent East, Saskatoon, Saskatchewan. It will be carried live on the companys
website, www.potashcorp.com.Holders of common shares
as of March 17, 2005 are entitled to vote at the
meeting and are encouraged to participate. DIVIDENDS Dividend amounts paid to shareholders resident in Canada
are adjusted by the exchange rate applicable on the
dividend record date. Dividends are normally paid in
February, May, August and November, with record dates
normally set approximately three weeks earlier. Future
cash dividends will be paid out of, and are conditioned
upon, the companys available earnings. Shareholders who
wish to have their dividends deposited directly in their
bank accounts should contact the transfer agent and
registrar, CIBC Mellon Trust Company. Registered shareholders can have dividends
reinvested in newly issued common shares of
PotashCorp at prevailing market rates. INFORMATION FOR SHAREHOLDERS OUTSIDE CANADA Dividends paid to residents in countries with which
Canada has bilateral tax treaties are generally subject
to the 15-percent Canadian non-resident withholding
tax. There is no Canadian tax on gains from the sale of
shares (assuming ownership of less than 25 percent) or
debt instruments of the company owned by non-residents
not carrying on business in Canada. No government in
Canada levies estate taxes or succession duties. OWNERSHIP On February 28, 2005,
there were 1,901 holders of record of
the companys common shares. SHARES LISTED Toronto Stock Exchange
New York Stock Exchange
Ticker Symbol: POT
 COMMON SHARE TRANSFER AGENT In Canada:
    
    In the United States:CIBC Mellon Trust Company
Suite 750  One Lombard Place
Winnipeg, Manitoba R3B 0X3
Phone: (204) 987-2490
             (800) 387-0825
    
    Mellon Investor Services, L.L.C.
85 Challenger Road, Overpeck Center
Ridgefield Park, New Jersey 07660
Phone: (800) 526-0801Website: www.cibcmellon.com
    
    Website: www.melloninvestor.com
 Shareholders with address changes or those with
inquiries concerning their Potash Corporation of
Saskatchewan Inc. stock are invited to contact: CIBC Mellon Trust (address above), or
Joseph A. Podwika, Corporate Secretary
PotashCorp
Suite 500, 122 - 1st Avenue South
Saskatoon, Saskatchewan S7K 7G3 INVESTOR INQUIRIES Betty-Ann Heggie, Senior Vice President, Corporate Relations
Canada: (800) 667-0403                            US: (800) 667-3930
e-mail: corporate.relations@potashcorp.com Visit us at
www.potashcorp.com INTERIM
REPORTS, NEWS RELEASES AND FORM 10-K Non-registered shareholders who wish to receive quarterly
reports should contact the Corporate Relations
department. News releases are available via fax and
e-mail. Copies of the companys most recent Form 10-K are
available upon request and on our website. NYSE CORPORATE GOVERNANCE Disclosure contemplated by 303A.11 of the NYSEs listed
company manual is available on our website at www.potashcorp.com. The company
has filed appropriate certifications pursuant to the
NYSE listing standards. The certifications required by
Section 302 of the Sarbanes-Oxley Act of 2002 are filed
as exhibits to our 2004 Annual Report on Form 10-K.
      Corporate Offices
 Canada:
    
    Suite 500, 122 - 1st Avenue South, Saskatoon, SK S7K 7G3 Phone: (306) 933-8500US:
    
    Suite 400, 1101 Skokie Boulevard, Northbrook, IL 60062 Phone: (847) 849-4200
    Common Share Prices and VolumesThe adjacent table sets forth the high and
low prices, as well as the volumes, for the
companys common shares as traded on the
Toronto Stock Exchange and the New York
Stock Exchange (composite transactions)
on a quarterly basis. Potash Corporation
of Saskatchewan Inc. is on the S&P/TSX 60
and the S&P/TSX Composite indices.
(Note: Data are adjusted for stock split
effective August 9, 2004 on the TSX and
August 16, 2004 on the NYSE.)1Trading prices are in Cdn$
 Toronto Stock Exchange1
    
    
    New York Stock ExchangeHigh
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low
    
    
    Volume2004First Quarter
    
    
    57.93
    
    
    
    50.96
    
    
    
    12,670,142
    
    
    
    44.75
    
    
    
    38.13
    
    
    
    15,905,400Second Quarter
    
    
    64.87
    
    
    
    54.58
    
    
    
    12,009,046
    
    
    
    48.50
    
    
    
    39.46
    
    
    
    23,604,000Third Quarter
    
    
    81.00
    
    
    
    60.75
    
    
    
    13,237,872
    
    
    
    64.25
    
    
    
    45.78
    
    
    
    30,366,000Fourth Quarter
    
    
    104.06
    
    
    
    76.05
    
    
    
    16,211,631
    
    
    
    84.00
    
    
    
    60.65
    
    
    
    29,245,700Year 2004
    
    
    104.06
    
    
    
    50.96
    
    
    
    54,128,691
    
    
    
    84.00
    
    
    
    38.13
    
    
    
    99,121,1002003First Quarter
    
    
    51.40
    
    
    
    41.28
    
    
    
    15,018,768
    
    
    
    33.18
    
    
    
    27.48
    
    
    
    25,139,800Second Quarter
    
    
    47.21
    
    
    
    40.75
    
    
    
    12,704,274
    
    
    
    32.75
    
    
    
    29.82
    
    
    
    21,213,000Third Quarter
    
    
    50.52
    
    
    
    42.40
    
    
    
    8,477,440
    
    
    
    36.78
    
    
    
    30.95
    
    
    
    14,140,200Fourth Quarter
    
    
    57.75
    
    
    
    46.88
    
    
    
    14,428,736
    
    
    
    43.63
    
    
    
    35.24
    
    
    
    24,381,780Year 2003
    
    
    57.75
    
    
    
    40.75
    
    
    
    50,629,218
    
    
    
    43.63
    
    
    
    27.48
    
    
    
    84,874,780




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